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The firm’s latest Miami Herald “Real Estate Counselor” column was authored by Eduardo J. Valdes and appears in today’s edition of the newspaper. The article, which is titled “Takeaways From Ruling Over Dispute at Hollywood Condo,” focuses on a recent decision over a dispute at the Hollywood Station Condominium by Florida’s Fourth District Court of Appeal that illustrates one potential outcome for community association lawsuits brought by concerned unit owners. His article reads:
. . . The case pitted Tara Ezer, a unit owner at the condominium and member of its association, against the association and six members of its board of directors. Her suit alleged that the directors violated the community’s bylaws by obtaining a loan without unit owner approval to fund material alterations to the common elements, and they misrepresented how the association would pay for the project.
Ezer’s lawsuit was a derivative action where one or more shareholders file suit in the name of a corporation against its officers and/or directors over its management/finances. The lawsuit sought an injunction to stop the alterations and requested the appointment of a receiver to manage the affairs of the condominium. It also sought damages from the defendant directors for breaches of fiduciary duties, civil conspiracy, and aiding and abetting fraud.
The case first arose in September 2020 when Ezer provided the board of directors with a letter summarizing her claims, which was followed by the filing of the lawsuit the very next month. In accordance with Florida law, the association responded to Ezer’s letter by commencing an investigation on the allegations to be led by an independent committee.
The committee was composed of two independent directors who were not named as defendants in the lawsuit. In accordance with Florida law, the independent directors were appointed to the committee by a majority of the board members who were not named as defendants in the lawsuit. It conducted a thorough investigation culminating in a report that was circulated to all association unit owners together with a notice for a special meeting to vote on whether maintaining Ezer’s lawsuit would be in the best interest of the association.
At that meeting, the unit owners overwhelmingly approved the report which concluded that continuing the derivative lawsuit was not in the association’s best interest.
In the ensuing litigation, the trial court dismissed the lawsuit with prejudice, concluding that it was not required to evaluate whether the committee’s recommendation was reasonable. Instead, the trial court based its ruling on whether the committee was independent, acted in good faith, and conducted a reasonable investigation. Using these parameters, the court found that the committee was properly appointed and independent, and it had conducted a reasonable investigation resulting in a report with an in-depth timeline that was narrowly tailored to the allegations.
In Ezer’s subsequent appeal, the Fourth DCA panel cited controlling precedent in support of the trial court and ruled that the committee’s independence was supported by substantial evidence. Specifically, the two committee members were not on the board when the transactions in question were approved, and they filed affidavits attesting to their lack of involvement and independence.
The panel also disagreed with Ezer’s contention that the trial court must independently assess the validity of the report’s conclusions. Instead, the panel found that Florida law permits the court to dismiss a derivative lawsuit when the investigative committee “has made a good faith determination after conducting a reasonable investigation.”
The appellate judges found that the plain language of the statute does not require courts to question a special committee’s recommendation, so long as they find the committee was independent and conducted its investigation reasonably and in good faith. Courts are also not required to apply their own business judgment to assess the merits of a committee’s conclusions.
The panel unanimously concluded that the lower court had complied with the statutory directive in reaching its decision finding the investigation was thorough and conducted in good faith. It affirmed the trial court’s ruling, determining that it thoroughly evaluated how the committee conducted its review as well as the steps it took to ascertain whether the derivative suit was in the association’s best interest.
Lawsuits such as this are somewhat rare, for reasons that this case vividly illustrates. As the prevailing party, the Hollywood Station Condominium Association may now be entitled to having its attorney fees and costs paid by Ezer, who is also presumably on the hook for her own significant appellate legal costs. . .
Eduardo suggests that unit owners who become concerned over the actions of their boards of directors should focus on attending board meetings, asking questions, conducting all of the necessary research and due diligence, and sharing their findings and concerns with their fellow unit owners. In some cases, he writes that consulting with an experienced community association attorney may be warranted.
Eduardo notes that many condominium associations are now starting to feel financial strains caused by the inadequate funding of reserves in past years, combined with increases in insurance costs as well as the looming new structural inspections and funding requirements. Concerns about increases in association budgets and members’ dues are bound to arise, but he suggests unit owners would be well advised to focus their efforts on becoming as involved and informed as possible rather than turning to costly and ineffective lawsuits.
Our firm salutes Eduardo for sharing his insights into the takeaways from this ruling with the readers of the Miami Herald. Click here to read the complete article in the newspaper’s website.