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Article by Marc Smiley in Today’s Daily Business Review: “Association Protected by Business Judgment Rule Against Disgruntled, Litigious Homeowner”

Marc-Smiley-SRHL-law-200x300Firm shareholder Marc A. Smiley authored an article that was featured as the “Board of Contributors” guest commentary column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which is titled “Association Protected by Business Judgment Rule Against Disgruntled, Litigious Homeowner,” discusses how the enforcement of restrictions against property improvements that are in violation of association covenants can become very contentious in single-family home communities.  It notes most of these disputes are between a homeowner seeking approval for alterations and their association’s architectural review committee, but some of the cases stem from third-party unit owners who become dissatisfied with their association’s decisions.  His article reads:

A recent ruling by Florida’s Fourth District Court of Appeal involved just such a dispute brought by a homeowner who was disappointed with his association’s approval of a neighbor’s new garage. In Miller v. Homeland Property Owners Association, the appellate panel affirmed the lower court’s partial final summary judgment in favor of a homeowner that had secured the association’s prior approval and built the garage on his property.

dbr-logo-300x57The Fourth DCA only addressed whether disputed issues of material fact precluded the entry of summary judgment and the proper application of the business judgment rule. Owners in the community of Homeland Property Owners Association are required to obtain approval of their plans by the association’s architectural review board prior to commencing any work. Restrictions that are in place in the community include a maximum building height of 32 feet and a prohibition against flat roofs.

A homeowner submitted plans to the association’s ARB in 2012 for permission to add a garage and was granted approval. The plans for the addition were then revised, and the owner concedes that the completed garage differs from the original plans approved by the association.

As part of unrelated legal proceedings between the association and other community members more than a year after the garage was completed, the association discovered that the homeowner’s plans for the garage had been modified without the ARB’s prior approval.

The association subsequently informed the homeowner that the revised plans had not been submitted for prior approval as required. Its primary concerns were the height of the garage and whether it had a flat roof.

The owner submitted a new application and architectural drawings, but shortly thereafter he retracted it based on his belief that the completed garage complied with the association’s use restrictions. He provided documentation from an engineering and construction firm, as well as a county building official, attesting to the garage’s height being under the maximum height permissible and noting that the “roof resembles a gambrel roof similar to a barn roof with a small flat walkway at the top. This is not considered a flat roof which is typically flat from one end to the other.”

After reviewing the submissions, the association’s board of directors approved the garage. The board noted that even though the homeowner failed to timely submit the revised plans, the association was required to strictly construe its restrictions in favor of allowing him the full use of his property.

The association’s legal counsel also recommended that it approve the garage, noting that some additional plans were submitted during its construction but the ARB apparently failed to respond.

A third-party homeowner, Ewell Miller, thereafter sued the association, bringing multiple claims for breach of contract and injunctive relief for its alleged failure to enforce its restrictions against various homeowners including the homeowner with the new garage. Miller alleged the association avoided its obligations under its governing documents by making a “business judgment” decision not to proceed against the homeowner with the garage.

In the association’s responsive motion for final summary judgment, it argued that the enforcement of its governing documents was discretionary, not mandatory, and it had reasonably exercised its business judgment when deciding whether to take enforcement action. The association admitted that the homeowner’s revised plans for the garage were not submitted prior to its completion, but it noted that it later approved the garage based on the opinion of the construction firm and its own attorney.

The association also contended that the decisions of its board of directors were protected by the business judgment rule, as corporate directors have broad discretion in performing their duties absent a showing of mismanagement, fraud or breach of trust. In addition, the association argued that its directors used reasonable discretion in implementing its restrictions and determining that the height and shape of the garage’s roof complied, and the board’s business judgment governed.

The trial court agreed that the association’s enforcement decisions were protected by the business judgment rule, and it issued an order granting summary judgment.

In the subsequent appeal, the Fourth DCA found that courts may use the business judgment rule to evaluate the management decisions of property associations and to avoid second-guessing those decisions.  When applying the rule to the decisions of a property association, the test is whether it had the contractual or statutory authority to perform the relevant acts and whether the board acted reasonably.

The appellate panel concluded that the association took enforcement action by sending a notice of violation to the homeowner when it learned of the possible issues with his garage.  After receiving documents indicating that the garage complied with its restrictions, in its business judgment it determined that there were no violations, so it ceased enforcement proceedings and approved the structure.

“In short, the issues of the garage’s height and roof shape were nonmaterial, as the association acted reasonably by accepting the opinion of the construction firm, the county official, and its own attorney,” the opinion reads. “The appellant’s long after-the-fact challenge to the garage’s compliance with the restrictions, through the use of an expert who simply expressed a different opinion, cannot upend the board’s decision to approve the garage,” it concludes.

Marc concludes the article by noting that this and other rulings by Florida’s courts illustrate how association directors who act reasonably will be protected by the business judgment rule from frivolous lawsuits brought by disgruntled homeowners.  He notes that fears of such suits by litigious association members should never deter owners from serving on their association’s board of directors.

Our firm salutes Marc for sharing his insights into the takeaways from this recent appellate ruling for Florida community associations with the readers of the Daily Business ReviewClick here to read the complete article in the newspaper’s website (registration required).

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