Iezzi Family Limited Partnership v. Edgewater Beach Owners Association, etc. , 254 So. 3d 584 ( 2018 )

FIRST DISTRICT COURT OF APPEAL
STATE OF FLORIDA
_____________________________
No. 1D16-5878
_____________________________
IEZZI FAMILY LIMITED
PARTNERSHIP,
Appellant,
v.
EDGEWATER BEACH OWNERS
ASSOCIATION, INC., a Florida not
for profit corporation; SUZANNE
HARRIS; STEPHEN E. BURGIN;
ROBERT D. MILLER, a/k/a R.D.
MILLER; WILLIAM R. TERRY, SR.;
FRANK T. FOSTER; LAWRENCE A.
COX; and HARRY E. LOGUE,
Appellees.
_____________________________
On appeal from the Circuit Court for Walton County.
Jeffrey E. Lewis and Thomas R. Santurri, Judges.
August 1, 2018
WINOKUR, J.
Iezzi Family Limited Partnership (“Iezzi”), owner of a
condominium in the Edgewater Beach Condominiums, filed a 27-
count complaint against the condominium’s Association and
seven current or former directors or officers of the Association
(“Directors”), 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 derivative pre-suit
requirements. On appeal, Iezzi argues that its actions were
brought under a statute specific to condominiums, outside of the
purview of the derivative procedures. We affirm, and hold that
members of not-for-profit condominium associations may not
avoid pre-suit requirements for derivative actions.
I. BACKGROUND
A condominium 1 association incorporated under chapter 617,
Florida Statutes, the “Florida Not For Profit Corporation Act,” is
generally subject to its laws. § 617.1703, Fla. Stat. The members
of these associations are the condominium unit owners, and the
officers and directors of the associations owe these members
certain fiduciary responsibilities. See § 718.111, Fla. Stat.
However, the association has broad powers and duties, including
all of those set forth in chapter 617, unless otherwise noted. Id.
Section 617.07401, Florida Statutes, restricts the ability of
members to bring lawsuits “in the right of” their non-for-profit
corporation. Members must bring their complaints to the board of
directors to allow the corporation to conduct investigations and
initiate a lawsuit. Id. If the corporation proves that it has
conducted an independent and reasonable investigation, and
determines in good faith that a lawsuit is not in the best interests
of the corporation, a court may dismiss the proceeding. Id.
Section 718.303(1), Florida Statutes, provides a cause of
action for damages or equitable relief that may be pursued by
either an association or unit owner. Liability for violating chapter
718 or the association’s governing documents may be imposed on
the association, unit owners, directors, and tenants. § 718.303,
Fla. Stat. The broad language of this statute encompasses a wide
variety of violations.
1 “The condominium is a hybrid estate in property law
whereby an individual obtains fee simple ownership of a unit and
shares with other unit owners an undivided interest in the
common elements.” Rogers & Ford Const. Corp. v. Carlandia
Corp., 626 So. 2d 1350, 1352 (Fla. 1993).
2
Iezzi’s complaint alleges that the Association acted
improperly and the Directors breached their fiduciary duties,
resulting in various illegal expenditures and assessments, and
losses of Association funds. Iezzi argues that to limit section
718.303(1) actions by requiring that they comply with the pre-
suit requirements of section 617.07401, would necessarily create
a conflict between the statutes. As Iezzi asserts, if the sections do
conflict, the provisions of chapter 718 must control. See §
617.1703, Fla. Stat.; see also Heron at Destin W. Beach & Bay
Resort Condo. Ass’n, Inc. v. Osprey at Destin W. Beach, 94 So. 3d
623, 631 (Fla. 1st DCA 2012).
II. ANALYSIS
Because it “is axiomatic that statutes must be read with
other related statutes,” and courts must “construe related
statutory provisions in harmony with one another” when
possible, we conclude that sections 718.303(1) and 617.07401 do
not conflict. See Abbott Labs. v. Mylan Pharm., Inc., 15 So. 3d
642, 657 (Fla. 1st DCA 2009) (quoting State v. Negrin, 306 So. 2d
606, 607 (Fla. 1st DCA 1975); Forsythe v. Longboat Key Beach
Erosion Control Dist., 604 So. 2d 452, 455 (Fla. 1992)).
In Part A, we define derivative actions and note that
plaintiffs may not evade pre-suit requirements by labeling their
complaints a certain way. In Part B, we examine the application
of common-injury claims to condominiums since chapter 718’s
enactment in 1976. Part C discusses the enactment of section
617.07401 in 2009, and the limited case law following it. We
conclude by finding that section 617.07401 applies to the instant
action and Iezzi’s failure to comply with its requirements merits
dismissal.
A. Derivative Actions
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
3
the injury sustained by other stockholders in the
corporation.
Leppert v. Lakebreeze Homeowners Ass’n, Inc., 500 So. 2d 252,
252 (Fla. 1st DCA 1986) (emphasis in original). 2
Iezzi acknowledges that its actions fit this description. It
further acknowledges that compliance with derivative procedures
has been required in the condominium context. See Collado v.
Baroukh, 226 So. 3d 924, 926 (Fla. 4th DCA 2017) (holding that
condominium owner’s “[n]oncompliance with the pre-suit
requirements of section 617.07401 mandates dismissal of the
suit”). Iezzi contends that the plaintiff in Collado chose to bring
her action as a derivative claim, whereas Iezzi does not bring its
action pursuant to the derivative-claim statute. But plaintiffs
may not decide that they are not subject to statutory
requirements merely by labeling their allegations in an effort to
avoid them. See S. Miami Hosp., Inc. v. Perez, 38 So. 3d 809, 811
(Fla. 3d DCA 2010) (rejecting the plaintiff’s “disingenuous[]
attempts to avoid” pre-suit requirements for medical malpractice
actions by “recharacterizing” the allegations); Dr. Navarro’s Vein
Ctr. of Palm Beach, Inc. v. Miller, 22 So. 3d 776, 778 (Fla. 4th
DCA 2009) (holding that the “factual allegations belie[d] the
conclusory legal allegations,” and, “despite the plaintiff’s creative
dance around the obvious, this complaint alleges a claim of
medical negligence”).
The plaintiff in Leppert brought suit against her
homeowners association alleging “corporate mismanagement,
invalidity of the bylaws, and a need for court supervision of all
2 See also Dinuro Invs., LLC v. Camacho, 141 So. 3d 731,
738-41 (Fla. 3d DCA 2014) (holding that Florida requires a direct
harm and special injury to a corporation member, or a special
duty owed, for a member to maintain an individual action
compared to a derivative one); Braun v. Buyers Choice Mortg.
Corp. ex rel. McAloon, 851 So. 2d 199, 203 (Fla. 4th DCA 2003)
(holding that the claims were derivative because the body of the
complaint alleged injuries that equally affected other corporation
shareholders).
4
corporate expenditures.” 500 So. 2d at 252. She argued that her
action was not derivative because she brought it individually and
sought redress for injuries she sustained directly. Id. This Court
reviewed the substance of the allegations made, noting that “the
character of the suit is to be determined from the gravamen of
the complaint.” Id. We held that the claim was derivative, finding
that the injury alleged was not distinct from other homeowners
and any harm was primarily against the corporation. Id; see also
Fox v. Prof’l Wrecker Operators of Florida, Inc., 801 So. 2d 175,
179 (Fla. 5th DCA 2001) (“[T]he injury is the determining factor
in deciding whether a claim is direct or derivative; if the injury is
to the corporation, and only indirectly harms the shareholder, the
claim must be pursued as a derivative claim.”). The substance of
the allegations made, and not what they are labeled, determines
the action.
B. Common Injury Claims & Condominiums: 1976-2009
The standing of individual condominium owners to allege
violations of fiduciary duties owed to associations has been
limited since the inception of chapter 718. In Avila S. Condo.
Ass’n, Inc. v. Kappa Corp., 347 So. 2d 599, 602, 605 (Fla. 1977), 3 a
condominium association and several individual plaintiffs sued
three of the original owners, developers, and officers of the
condominium, alleging self-dealing and other improper acts. The
supreme court noted that “the allegation, boiled down, is that a
fiduciary duty owed to the Association was breached.” Id. at 609.
Because the individual plaintiffs pled no injury distinct from that
to the association, only the association could bring suit. Id.Since Avila, many unit owners alleging injuries common to
others have found success in court, but these suits largely fall
into two categories: those seeking equitable relief and those
brought in a representative capacity.
3 We note that although both sections 718.111 and 718.303
have been repeatedly amended since 1976, there have been no
changes relevant to the issues before us, and Iezzi does not
contend otherwise.
5
Many courts have permitted condominium unit owners to
seek equitable relief from their associations and directors,
especially when the alleged injury is to common areas of the
condominium. See, e.g., Hobbs v. Weinkauf, 940 So. 2d 1151 (Fla.
2d DCA 2006) (holding that owners could seek equitable relief
based on association’s failure to comply with statutory accounting
requirements); Sheoah Highlands, Inc. v. Daugherty, 837 So. 2d
579 (Fla. 5th DCA 2003) (unit owners complaint that other
owners erected non-compliant screen enclosures on common
property required them to be removed); Islandia Condo. Ass'n,
Inc. v. Vermut, 501 So. 2d 741 (Fla. 4th DCA 1987) (association’s
unauthorized repainting of buildings required owners’ vote to
decide whether to repaint buildings back to original color).
Other cases have found standing when the plaintiffs have
represented more than their own individual interests. See Rogers
& Ford Const. Corp. v. Carlandia Corp., 626 So. 2d 1350, 1354
(Fla. 1993) (“Appellate decisions indicate that actions with
respect to common areas or common elements of condominiums
have been brought either as class actions, derivative actions, or
by a unit owner joined by the condominium association and/or
other unit owners.”). In Rogers, the supreme court determined
that an owner could sue developers or general contractors over a
common injury “only after ensuring that the interests of the other
unit owners are represented in the action,” but specifically
declined to address whether individual owners could sue the
association or directors for breaching fiduciary duties. Id. at 1355
& 1355 n.7.
Iezzi points to the above cases and others similar for support,
while its own suit seeks legal damages and was brought in a
purely individual capacity.
C. Enactment of Section 617.07401
Despite a possible 1993 attempt to prohibit members of not-
for-profit corporations from bringing derivative actions, 4 they
4 For a discussion of the 1993 amendment to chapter 617,
and its effect, see Larsen v. Island Developers, Ltd., 769 So. 2d
1071 (Fla. 3d DCA 2000), and Fox, 801 So. 2d at 179.
6
were continually permitted, although perhaps to a lesser extent
in the condominium context. Not until 2009 did the Legislature
enact section 617.07401, providing a pre-suit process for members
to bring derivative claims in the right of not-for-profit
corporations. See Ch. 09-205, § 24, at 2060, Laws of Fla.
This statute resolves the representative issues discussed in
Rogers. Section 718.303(1) permits condominium unit owners and
associations to take action against each other, as well as directors
and tenants. But if the claims are derivative, plaintiffs must
comply with the requirements necessary for any not-for-profit
corporation under section 617.07401. This legislative
requirement resolves the “numerous practical problems”
discussed by the supreme court in Rogers regarding individuals
bringing common-injury claims. 626 So. 2d at 1354 (including
“determining the appropriate measure of damages to the unit
whose owner sued, as distinct from the remaining units;
allocating the recovered damages; litigating multiple lawsuits;
incurring unnecessary costs incident to having multiple trials;
having potentially contradictory adjudications; expediting
resolution of controversies; and accomplishing repairs”).
Little case law discussing section 617.07401 has developed
since its inception. In Sharma v. Ramlal, 76 So. 3d 955 (Fla. 2d
DCA 2011), members and directors of a not-for-profit corporation
sued the president of the corporation and the corporation itself,
alleging breaches of fiduciary duties and fraud, among other
charges. In a concurrence, Judge LaRose questioned the
plaintiffs’ standing, noting that their cause of action appeared to
belong to the corporation, and they did not allege compliance with
section 617.07401. Id at 956-57 (LaRose, J., concurring); see also
Udick v. Harbor Hills Dev., L.P., 179 So. 3d 489, 491 (Fla. 5th
DCA 2015) (noting that derivative suit requirements apply to
corporations not for profit); Collado, 226 So. 3d at 927 (holding
that condominium owner’s action did not adequately comply with
section 617.07401).
Iezzi cites MacKenzie v. Centex Homes, 208 So. 3d 790, 791
(Fla. 5th DCA 2016), which dealt with a homeowners association
and an analogous cause-of-action statute. The plaintiff filed an
action for a declaratory judgment against the association and
7
Centex Homes, which was then in control of the association,
alleging that Centex Homes failed to make statutorily required
monetary contributions to the association. Id. at 791-92. Centex
Homes argued that the Mackenzies did not have standing
because any recovery stemming from a declaratory judgment
would go to the association and not the Mackenzies. Id. at 793.
The Fifth District found standing, concluding that an increase in
the association’s accounts lessened the chance of a special
assessment on the homeowners in the future, and thus, the
plaintiffs had a “bona fide interest in the account.” Id.
We find that Mackenzie does not apply here for three
reasons. First, MacKenzie does not carry the same concerns
apparent in Rogers regarding plaintiffs representing unit owners
similarly injured. While the declaratory action in Mackenzie was
brought individually, its success would benefit the entire class;
the plaintiffs’ success would result in an influx of funds for the
association, giving every homeowner potential relief in the form
of reduced assessments. In contrast, here, success against the
Association and/or Directors would result only in relief for Iezzi.
Second, the factual posture of the instant case is more analogous
to Leppert and Avila, both of which held that the directors’
alleged violations of fiduciary duties were derivative claims.
Third, there is no indication that the defendant made any
argument as to compliance with derivative pre-suit requirements.
III. CONCLUSION
Iezzi claims injuries not distinct from any other unit owner,
and seeks legal damages for its exclusive benefit. This is a
derivative action, and because sections 718.303(1) and 617.07401
do not conflict, the court did not err in dismissing Iezzi’s
complaint because Iezzi did not comply with section 617.07401
pre-suit requirements. We affirm, and repeat the principle that
the substance of the allegations made in a complaint determines
the nature of the action.
AFFIRMED.
B.L. THOMAS, C.J., and MAKAR, J., concur.
8
_____________________________
Not final until disposition of any timely and
authorized motion under Fla. R. App. P. 9.330 or
9.331.
_____________________________
Gary A. Shipman, Robert L. Kauffman, and Lana Hillis, Dunlap
& Shipman, P.A., Santa Rosa Beach, for Appellant.
Mary K. Simpson and Amanda W. Gay, Guilday, Simpson, West,
Hatch, Lowe & Roane, P.A., Tallahassee, for Appellees.
9