Hollywood Towers Condominium Association v. Hampton: An Association-Friendly Decision by the Fourth District Court of Appeal (Fall 2010 Litigation Quarterly)

Like corporate boards of direc­tors, condominium as­sociation boards have meetings, hold votes, and make decisions about the direction that their organiza­tions will take. Un­like typical corporate boards, however, as­sociation boards are often comprised of lay volunteers tasked with making decisions outside of their areas of expertise. Despite this distinction, many condominium residents would like to hold their association board members to standards which can, at times, be unrealistic. When those standards are not met, or a resident simply disagrees with a board decision, the disgruntled association member of­ten seeks legal recourse. In pursuing an injunction or damages from the courts, the plaintiffs in association cases are effectively saying, “I disagree with a decision that the board made; the de­cision caused me harm; tell them they were wrong.” If a mere shareholder disagreement with a board decision was grounds for a lawsuit, however, companies would drown in litigation. As a result, courts have adopted the business judgment rule, which in­sulates boards of directors from liability for decisions they make so long as the board acted in a reasonable manner. The clear application of this rule to association boards would go a long way to diminish lawsuits against associations, saving them time, money, and headaches.

In Florida, it is well established that absent fraud, self-dealing and betrayal of trust, directors of condominium associa­tions are not personally liable for the decisions they make in their capacity as directors.1 The standard by which a trial court should review the decisions of a condominium association’s board of directors has not been as well established. As a result, on June 23, 2010, the Fourth District Court of Appeal for the State of Florida (“Fourth DCA”) adopted a test articulated by the Cali­fornia Supreme Court2 and held 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.”3

In Hollywood Towers Condominium Association, Inc. v. Hampton, case, the board determined that a number of the unit owners’ balconies needed structural repairs that required work be done inside of each unit. Pursuant to the declaration of condo­minium, owners were required to permit the board and its agents to enter their units for the purpose of maintenance, inspections, repair, or replacement. The unit owner plaintiff, however, re­fused the association access and retained an engineer who said the balcony was structurally sound after only the exterior repairs were performed. As a result, the association requested injunc­tive relief from the court. The trial court ruled in favor of the unit owner, finding that the association did not meet its burden of showing irreparable harm because there was a question as to whether the additional work was necessary. On appeal, however, the Fourth DCA held that, on remand, the trial court must per­form the Lamden test and determine whether the association had the authority to access the unit to repair the balcony, and, if so, whether it acted reasonably.

Based upon the court’s holding in Hollywood Towers, the Fourth DCA has unequivocally extended the business judg­ment rule to association board decisions. As such, a board deci­sion should not be reviewed by a court so long as the board’s decision was within the scope of its authority, and it was reason­able. While this ruling is favorable to condominium associa­tions, it remains important for association boards to review their governing documents and Florida’s Condominium Act prior to making any decisions affecting the unit owners in order to ensure that their decisions are within their authority under the governing declaration and by-laws.

In Hollywood Towers, the association’s decision related to the renovation of the building’s balconies, which, pursuant to the governing documents, were the responsibility of the asso­ciation. Therefore, it is likely that the trial court will now find that the decision was within the association’s authority, and the outcome will then be left to the finder of fact to determine wheth­er the board’s decision was reasonable. Boards must be wary, however, when making decisions relating to elements for which the unit owners are responsible, as it still appears to be an open question whether the same deference will be extended to asso­ciations in those instances. Moreover, issues can become even more complicated when associations make decisions relating to elements for which the unit owners are financially responsible, but the association has the responsibility to insure. Therefore, it is likely that the limits of this association-friendly decision will be revisited and clarified through future cases arising under those circumstances.

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Endnotes

1 Sonny Boy, L.L.C. v. Asnani, 879 So. 2d 25, 27 (Fla. 5th DCA 2004).

2 Lamden v. La Jolla Shores Clubdominium Homeowners Ass’n, 980 P.2d 940, 942 (Cal. 1999).

3 Hollywood Towers Condo. Ass’n, Inc. v. Hampton, 40 So. 3d 784 (Fla. 4th DCA 2010).