Fisher v. Shipyard Village Council of Co-Owners, Inc. ( 2016 )

THE STATE OF SOUTH CAROLINA
In The Supreme Court
Richard A. Fisher, Platte B. Moring, Jr., Trustee of the
Platte B. Moring, Jr. Living Trust dated March 13, 2001;
Marianne Kochanski, and Jim H. Markley, III,
Individually, and in a Representative Capacity on Behalf
of All Persons Similarly Situated Who Own Units in
Buildings C and D of the Shipyard Village Horizontal
Property Regime; Robert A. Wright, Mary Beth C.
Wright, H. Allen Wright, Joyce Y. Wright and Carolyn
L. Wright; Carmen J. Savoca, Ann D. Savoca, William
John Savoca and Donna S. Strom; James T. Hunter and
Mary D. Hunter; Dwain C. Andrews; WWS, LLC, a
South Carolina Limited Liability Company; Donald L.
Henson and Sandra L. Henson; Allen M. Funk; Norman
J. Rish and Mary T. Rish; Angela M. Markley; Walter C.
Worsham and Carolyn W. Worsham; Enrico S. Piraino
and Giusto Piraino; Otis T. Harrison and Rose C.
Harrison; James E. Newman, Jr.; Brenda E. Fisher and
Joseph R. Canning and Kathleen B. Canning; James D.
Reynolds, Jr.; Fuller Family, LLC; Richard T. White and
Rory L. White; Propst and Dawson, LLC; Litchfield
Quarters, LLC, and Larry O. Snider and Paula D. Snider;
William C. Hammond, Jr., Living Trust and the Shawn S.
Hammond Living Trust; GAB IV, LLC, a Virginia
Limited Liability Company; Robert C. McBride and
Susan R. McBride, Trustees of the Robert C. McBride
Family Trust u/d/t July 24, 2008, and Susan R. McBride
and Robert C. McBride, Trustees of the Susan R.
McBride Family Trust u/d/t July 24, 2008; Evelyn J.
Valuska; Barbara W. Beymer; Montrose Associates,
LLC; Harry L. Belk and Jan C. Belk; Dennis E. Barrett
and Wilma J. Barrett; First Family Properties, Inc.,
Cynthia L. Jones, Sandra D. Huggins and Margaret S.
Dover, Thomas Franklin Huggins, Frank S. Krouse and
Barbara T. Krouse, Judith W. Mill, William Mill and
Susan Mill, Gene R. Riley and Patricia C. Riley, Harold
LeMaster and Patti LeMaster; Joseph P. Heaton and
Frances H. Heaton; Robert N. Kelly; H. S. Keeter and
Sandra C. Keeter; Brian R. Nisbet Trust Agreement dated
November 16, 1998 and Mary M. Nisbet Trustee of the
Mary M. Nisbet Trust Agreement dated November 16,
1998, Dorothy Jean Foster; Captains Quarters D-24
Association of Owners, Inc., Michael H. Sanders and
Rebecca H. Sanders, Ruth Gray Wheliss, David B.
Shivell and Nicki M. Shivell, Debra B. Leeke, Joseph
Alan Capobianco and Lara Serro, Sharon Gibson Daniel,
Gary C. Andes and Andrea W. Andes, Jay Hendler and
Laura Hendler, Joy P. McConnell, Charles W. Fortner,
Judith C. Woodson, Warren W. Riggs and Charles G.
Martin, Riggs Ventures, LLC, and SGS Beach Partners,
LLC; Morgan J. Mann and Angela M. Mann; Michael
Cameron Foster, Sr. and Laura Lee Foster; Captains
Quarters Unit D-31 Association of Multiple Ownerships,
Inc., Evelyn Gail Earnest, Francis G. Thomson and
Arleen S. Thomson, Robert W. Dalton, Red Oak Limited
Partnership, William R. McKeown and Margaret A.
McKeown, Norman K. Moon and Barbara W. Moon,
David T. McGill and Carol G. McGill, Rick L. Bledsoe
and Susan H. Bledsoe, Geoffrey A. Wienke and Pamela
L. Wienke, A. Donald Ross III and Nancy Kay Ross,
Dennis J. Straw and Roxanne B. Straw, and Resort
Investments of Litchfield, LLC; Georgia M. Pruitt and
Howard M. Pruitt, Jr.; Jean T. Blaylock; William C.
Covington, Jr. and Donna C. Covington; Litchfield
Captain's Quarters, LLC; James A. Schubert and Laraine
C. Schubert; Daniel P. Duvall and Mary Lynn Duvall;
Victor A. Medina and Melinda Leigh Medina; Judy P.
Hamer; Boyce F. Miler and Carole L. Miller, Raymond
A. Shingler and Louise O. Shingler, Paul Larry Barnette
and Carol Jane Barnette, James R. Walker and Erika T.
Walker, Kathy W. Underwood, Andrew J. Wingo, Jr. and
Susan A. Wingo, Melanie S. Franklin, Lois E. Cooley,
Trustee of the Lois E. Cooley Living Trust, B. Lee Smith
and Margaret H. Smith, Jason A. Underwood, Camilla J.
Wilson; Stewart South, LLC; Quarter South, LLC;
Steven H. Frame and Kay B. Frame, Petitioners,
v.
Shipyard Village Council of Co-Owners, Inc.,
Respondent.
Shipyard Village Council of Co-Owners, Inc., Third-
Party Plaintiff,
v.
Cincinnati Insurance Company, Travelers Insurance
Company, Companion Property & Casualty Insurance
Company, Philadelphia Insurance Company, Zurich
American Insurance Company, American Guarantee and
Liability Ins. Co., St. Paul Fire and Marine Insurance
Company, and Illinois National Insurance Company,
Third-Party Defendants.
Appellate Case No. 2014-002394
ON WRIT OF CERTIORARI TO THE COURT OF APPEALS
Appeal From Georgetown County
Larry B. Hyman, Jr., Circuit Court Judge
Opinion No. 27603
Heard November 3, 2015 – Filed January 27, 2016
AFFIRMED AS MODIFIED
Howell V. Bellamy, Jr., and Howell V. Bellamy, III, both
of Bellamy, Rutenberg, Copeland, Epps, Gravely &
Bowers, PA, of Myrtle Beach, for Petitioners.
Carlyle Richardson Cromer and R. Wayne Byrd, both of
Turner Padget Graham & Laney, PA, of Myrtle Beach,
for Respondents.
Acting Justice Toal: The underlying dispute in this case involves the repair of
faulty windows and sliding glass doors in a condominium development, Shipyard
Village Horizontal Property Regime (Shipyard Village), in Pawleys Island, South
Carolina. Fifty co-owners of units in Buildings C & D of the development
(Petitioners) appeal the court of appeals' decision reversing the trial court's finding
that the business judgment rule does not apply to the conduct of the Board of
Directors (the Board) of the Shipyard Village Council of Co-Owners, Inc. (the
Council), and the trial court's decision granting Petitioners partial summary
judgment on the issue of breach of the Board's duty to investigate. See Fisher v.
Shipyard Village Council of Co-Owners, Inc., 409 S.C. 164, 760 S.E.2d 121 (Ct.
App. 2014). We affirm the court of appeals' decision as modified.
FACTS/PROCEDURAL BACKGROUND
Shipyard Village was established in 1982 pursuant to the recording of its
Master Deed. Bylaws were promulgated to govern the Board's administration of
the Council. Phase I of Shipyard Village was completed in 1982, and consists of
Buildings A and B, each of which contains forty units. Phase II was completed in
1998, and consists of Buildings C and D, each of which contains thirty units.
Evidence in the record indicates that water leaks around the windows and
sliding glass doors in various units in Buildings A and B date back to 1983.
Moreover—although there is conflicting evidence as to the cause—the evidence
indicates that the Board knew about the leaks for years, and that the co-owners of
units with leaks failed to maintain and repair their units as required by the Master
Deed and Bylaws.
Section 3.6(c) of the Master Deed provides that a unit's balcony doors,
including the doors' "frames, casings, hinges, handles, and other fixtures" are part
of each unit. Under Section 3.7(a) of the Master Deed, the roofs and stucco
exteriors of the units are common elements.
Sections 6.1 and 6.2 of the Bylaws provide that the property manager of
Shipyard Village or the Board is responsible for the maintenance, repair, and
replacement of the "common elements," and co-owners are responsible for the
maintenance and repair of their own units. However, section 6.3 of the Bylaws
provides:
[I]f a co-owner fails to perform the maintenance required of him by
[the Bylaws], and such failure creates or permits a condition which is
hazardous to life, health, or property, or which unreasonably interferes
with the rights of another [c]o-owner, or which substantially detracts
from the value or appearance of the Regime Property, the Board []
shall, after giving such [c]o-owner reasonable notice and opportunity
to perform such maintenance, cause such maintenance to be
performed and charge all reasonable expense of so doing to such [c]o­
owner by an Individual Assessment.
Section 6.4 of the Bylaws further states:
The expenses of all maintenance, repair, and replacement provided by
the Manager or the Board . . . shall be Common Expenses, except that
when such expenses are not fully reimbursed by insurance proceeds
and when they are necessitated by (1) the failure of a [c]o-owner to
perform the maintenance required by these Bylaws or by any lawful
Regulation or (2) the willful act, neglect, or abuse of a [c]o-owner,
they shall be charged to such [c]o-owner as an Individual Assessment.
Similar to the Bylaws, Section 5.6 of the Master Deed provides that maintenance,
repair, and replacement of the common elements are the Board's responsibility, and
that the expenses incurred for such purposes shall be assessed as common expenses
except in the case of the negligence of a co-owner.
At a board meeting on June 15, 1999, the Board discussed the responsibility
for waterproofing the units' balcony thresholds (the area underneath the sliding
glass doors) and window frames pursuant to the Master Deed. The Board moved
to notify all co-owners that they were responsible for waterproofing their balcony
thresholds and window frames, and subsequently mailed such notice to the co-
owners on August 11, 1999.
A management report dated August 23, 2002, referenced the "many calls"
the Board was receiving about leaking windows in Buildings A and B. The report
noted that "[t]his is the owners['] responsibility and [is] very difficult for some to
try to deal with getting the work done," and further stated that "[w]e are in the
process of inspecting the windows and formulating a plan/price."
At some point in 2002, the Board hired McGee Consulting Association
(MCA) to investigate and perform testing on the windows of Buildings A and B.
The minutes from the September 27, 2002, special meeting of the Board indicate
that MCA conducted water testing on some of the windows. The water testing
confirmed positive water intrusion, which had caused some of the wood framing to
deteriorate. In response to this information, the Council's attorney informed the
Board that "there were safety issues with respect to the durability of the windows,"
and recommended the Board pursue legal action against the responsible parties.1
In response to co-owners' complaints, the Board repeatedly informed co-
owners that under the Master Deed, the leaks in windows and sliding doors were
their responsibility. For example, a letter dated March 28, 2003—written on behalf
of the Board by Kelli Diehl, the property manager of Shipyard Village, to a co-
owner in Building A—stated, in pertinent part: "It has been determined that during
a hard rain, water flows under the threshold of your sliding glass door and leaks
onto the unit below. The sliding doors are the owners' responsibility to maintain
and thus, we are requesting that you take action to correct this problem."
Furthermore, Dr. Leon Jennings—the president of the Board at that time—sent a
letter informing co-owners that for various reasons, the Board did not endorse a
lawsuit on behalf of the Board regarding the faulty windows. Instead, the Board
"advise[d] all owners to have their windows inspected and repaired if needed."
In 2003, the Board hired Keystone Construction (Keystone) to study leaks
that were manifesting themselves at some of the windows. Keystone concluded
that the water was leaking through the stucco—not the windows. Keystone also
found that non-existent window flashing2 was part of the problem.
1
At a special meeting of the Board that occurred on February 21, 2002, an
engineer's report "stressed that problems from water intrusion are time related and
tend to compound."
2
Window flashing is not the responsibility of co-owners under section 3.6(c) of the
Master Deed.
In 2004, after reporting water intrusion problems, Ben and Katie Morrow,
co-owners of a unit in Building B, replaced their windows. However, even after
replacing their windows, they continued to experience water intrusion problems
and engaged an engineer, Donald Manning, who identified stucco cracks as the
source of the water intrusion.3 Ultimately, Manning confirmed that Building B
was "sick and about to become cancerous," that the inside intrusion of moisture
was "severe," and that some co-owners were in "denial of this ever-increasing
problem."
At the Board meeting on February 17, 2006, Jennings discussed the stucco
problems. Jennings explained that repairing individual windows would not solve
leak issues, but rather, the leakage occurred at the window/stucco interface—a
problem which required vertical stacks of windows be removed, flashed, and
replaced at the same time. According to Jennings, stucco problems around a
window were the Board's responsibility to repair, but if stucco was damaged during
the installation of a window, the co-owner was responsible for repairing the stucco.
In essence, Jennings acknowledged that it was "difficult and impractical" for
owners to try to replace the windows.
A proposal from Pro-Tec Finishes, Inc., estimated a cost of approximately
$2,400,000 to replace the windows in Buildings A and B. At the annual members'
meeting on April 15, 2006, the Board attempted to amend the Bylaws to designate
the windows and sliding glass doors as common elements (via the "window
amendment")—and therefore, the responsibility of the Board. However, the
amendment failed to receive the required two-thirds affirmative vote needed to
pass. A motion was made, and carried unanimously, to leave the vote open for
thirty days to allow those co-owners who did not vote at the meeting, to vote.
However, upon subsequent discussions with its attorney, the Board decided not to
leave the vote open.
Instead, on April 24, 2006, the Board sent a letter to co-owners stating that
because the first vote on the window amendment did not pass, the Board "decided
to start the amendment process over." Therefore, along with that letter, the Board
mailed out a new proxy card to all co-owners, seeking the co-owners' approval of
3
Similarly, Shipyard Village's new site maintenance supervisor, Richard Bennett,
determined that sealant joint failures at the window-stucco interface, as well as
cracked stucco, could be causing the problem.
the window amendment, and instructing the co-owners to return the proxy card by
mail or fax.4
On July 6, 2006, the Board sent a letter to co-owners, stating that the
window amendment had passed. The letter did not address the voting procedure
used to adopt the window amendment. In fact, the recorded amendment itself
misrepresents the procedure, providing that "a Special Meeting was held on April
15, 2006 for the purpose of voting on this Amendment to the Master Deed."5
Further, the window amendment did not explicitly make the sliding glass doors a
common element.
In 2007, the Board hired Kenneth G. Schneider, Jr., who identified an "open
joint" directly under the sliding glass doors' threshold between adjoining hollow
core slabs of the balcony and unit, which allowed water to leak into the unit below.
On September 18, 2007, Diehl e-mailed the Board regarding window leaks in
Buildings A and B. The e-mail states, in pertinent part:
Please understand that many, many of these units were leaking
previously and because windows were the owners' responsibility, the
issue was thrown back at the owners who most ended up doing
nothing, and now that this is the [Board's] responsibility, owners are
impatient . . . . Most of you were not on the board to remember but I
tried to bring this up after I was here for a while and I got my hand
slapped big time by Bobby Warner [the maintenance supervisor] and
some board members because this was an owner responsibility.
Bobby Warner only did cosmetic stucco repairs to these [buildings]
for 20+ years and kept pushing back to the owners—who clearly
could not handle and needed help.
4
Section 1.3 of the Bylaws, which declares that votes may only be cast at
meetings, and Section 1.5 of the Bylaws, which states that "[a]ny action which may
be taken by a vote of the unit owners may also be taken by written consent to such
action signed by all [co-]owners entitled to vote," are the only two voting
procedures permitted under the governing documents for amending the Master
Deed and Bylaws. (Emphasis added).
5
The amendment was actually passed as a result of the proxy vote by mail, about
which no meeting was held.
On April 19, 2008, the Board reported at the annual members meeting that
Buildings A and B required extensive repairs, and that all co-owners' windows and
sliding glass doors needed to be removed and replaced—work which would cost
$12,000,000 to $13,000,000. At the meeting, the Board provided that all co-
owners would be responsible for a proposed special assessment to fund the work, if
it passed.
Around this time, one of the Board's consultants, HICAPS, gave a
presentation to the Board identifying the problems in Buildings A and B. HICAPS
identified two primary problems: (1) failures in the structural concrete, including
corrosion of the reinforcing steel; and (2) the building envelope was not "weather
tight." Another structural inspection revealed numerous failures in Buildings A
and B: roof failure, façade failure, edge beam failure, soffit failure, concrete
failure, expansion joint failure, horizontal surface failure, HVAC anchorage
failure, and poor to non-existent flashing in the windows and doors.
In May 2008, co-owners who owned units in Buildings C and D hired
attorney Jeff King, who sent a letter to the Board asserting that the proposed
special assessment was invalid because the window amendment was not properly
adopted under the Bylaws, and therefore, the total cost of repair and replacement
remained the sole responsibility of the co-owners of Buildings A and B. In
January 2009, a majority of co-owners of Buildings C and D brought a lawsuit
challenging the validity of the window amendment.
As a result of the lawsuit, the Board called for a re-vote on the window
amendment, and a vote on an additional "sliding glass door amendment"6 at a
special members meeting held on March 21, 2009. Both votes failed to obtain the
required two-thirds affirmative vote to pass.
On July 8, 2009, the Board notified co-owners that the windows and sliding
glass doors would be replaced in Buildings A and B, and that the "most efficient
way to finance the necessary repairs is through a Special Assessment" and the
"more cumbersome alternative called for in the Bylaws would make it necessary
for the cost of the repairs to be added to the 2010 and 2011 Operating Fund[, and
to] bill all homeowners monthly just like other homeowners['] expenses." The
proposed assessment was $88,398 per unit for Buildings A and B; $64,868 per unit
6
Similar to the window amendment, this amendment would have made each unit's
sliding glass door a common element.
for three-bedroom units in Buildings C and D; and $68,471 for four-bedroom units
in buildings C and D.
The co-owners voted against the special assessment. Consequently, the
Board incorporated the repair costs into the 2010 and 2011 annual operating
budgets. Minutes from the November 13, 2009, special meeting of the Board
provide that the 2010 operational budget was increased to fund approximately half
of the repairs and reconstruction of Buildings A and B. However, the Board never
submitted the 2010 operational budget to the co-owners for their review and
amendment, as required by the Bylaws.7 The balance of the repairs and
reconstruction were to be funded in the 2011 operational budget.
On October 7, 2009, Petitioners filed a new lawsuit, alleging negligence and
gross negligence, negligent/gross negligent misrepresentation, breach of fiduciary
duty, and breach of the Master Deed and Bylaws. This suit was consolidated with
the prior lawsuit brought by co-owners of Buildings C and D.
In May 2012, Petitioners moved for summary judgment on their negligence
and breach of fiduciary duty causes of action. Following a hearing, the trial court
granted Petitioners' motion for summary judgment in part for the negligence claim
on the issues of duty and breach. The trial court found that the Bylaws and Master
Deed imposed affirmative duties on the Board to enforce, investigate, and correct
known violations of the Master Deed and the Bylaws, and to investigate when
presented with evidence showing that an individual co-owner's neglect in
maintaining his or her unit resulted in damage to the common elements. The trial
court found that the Board breached its duty to investigate the substantial evidence
in the record that reasonably showed that co-owners neglected the maintenance of
their leaking windows and sliding glass doors.
Ultimately, the trial court found that the Board was precluded from asserting
protection under the business judgment rule for two reasons. First, the trial court
found that "the standards of [the Board] are controlled by three specific
7
Section 5.2 of the Bylaws provides that the Board shall "prepare, adopt and
present, or cause to be prepared and presented, to the [c]o-owners at their annual
meeting an annual budget" for the next fiscal year. Further, Section 5.3 of the
Bylaws states that the budget, as adopted by the Board, may be amended upon the
motion and affirmative vote of co-owners holding two-thirds of the percentage
interest in the common elements.
documents"—Shipyard Village's Master Deed, its Bylaws, and the South Carolina
Horizontal Property Act8 (the Act)—"and not the general corporate standard of the
business judgment rule." Second, the trial court found that the Board was
precluded from asserting the business judgment rule based on its ultra vires
conduct, as well as its lack of good faith and failure to exercise due care or
reasonable care in discharging its duties under the Bylaws. Specifically, the trial
court cited the Board's "lack of good faith in continuing to enforce the 2006
window amendment . . . when it admittedly knew the amendment was invalid and
[un]enforceable in June 2008." Further, the trial court found that the Board's
failure to place its adopted annual budgets on the agenda for presentation to the co-
owners at the 2009 and 2010 annual members' meetings, as well as the Board's
"invalid assessment" of costs, were ultra vires acts.
The court of appeals affirmed the trial court's grant of summary judgment on
the existence of a duty to investigate.9 Fisher, 409 S.C. at 182, 760 S.E.2d at 131.
However, the court of appeals reversed the trial court's finding on the business
judgment rule and its decision to grant summary judgment on the issue of breach,
and remanded the case for trial. Id.
This Court granted Petitioner's petition for writ of certiorari to review the
court of appeals' opinion.
ISSUES PRESENTED
I. Whether the court of appeals erred in reversing the trial court's
finding that the business judgment rule does not apply to the
Board's conduct?
II. Whether the court of appeals erred in reversing the trial court's
decision granting Petitioners summary judgment on the issue of
whether the Board breached its duty to investigate?
STANDARD OF REVIEW
On review of an order granting summary judgment, the appellate court
8
S.C. Code Ann. §§ 27-31-10 to -440 (2007 & Supp. 2014).
9
Neither party appeals the court of appeals' decision on this issue.
applies the same standard as that used by the trial court pursuant to Rule 56(c),
SCRCP. Turner v. Milliman, 392 S.C. 116, 122, 708 S.E.2d 766, 769 (2011).
Summary judgment is appropriate where the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. Rule 56(c), SCRCP; Turner, 392 S.C. at 766, 708
S.E.2d at 769. In a negligence case, where the burden of proof is a preponderance
of the evidence standard, the non-moving party must only submit a mere scintilla
of evidence to withstand a motion for summary judgment. Bass v. Gopal, Inc., 395
S.C. 129, 134, 716 S.E.2d 910, 912 (2011) (citation omitted). In determining
whether any triable issues of material fact exist, the court must view the evidence
and all reasonable inferences that may be drawn from the evidence in the light
most favorable to the non-moving party. Fleming v. Rose, 350 S.C. 488, 493–94,
567 S.E.2d 857, 860 (2002).
LAW/ANALYSIS
I. Business Judgment Rule
Petitioners argue the court of appeals erred in reversing the trial court's
decision that Respondent is precluded from asserting the protection of the business
judgment rule. We disagree.
In South Carolina, courts apply the business judgment rule to protect
corporate directors. "'Under the business judgment rule, a court will not review the
business judgment of a corporate governing board when it acts within its authority
and it acts without corrupt motives and in good faith.'" Kuznik v. Bees Ferry
Assocs., 342 S.C. 579, 599, 538 S.E.2d 15, 25 (Ct. App. 2000) (quoting Dockside
Ass'n, v. Detyens, 291 S.C. 214, 217, 352 S.E.2d 714, 716 (Ct. App. 1987)); see
also Dockside Ass'n, v. Detyens, 294 S.C. 86, 87, 362 S.E.2d 874, 874 (1987) ("We
now uphold the [c]ourt of [a]ppeals' determination that the business judgment rule
precludes judicial review of actions taken by a corporate governing board absent a
showing of a lack of good faith, fraud, self-dealing or unconscionable conduct.").
The business judgment rule applies to disputes between directors of a homeowners'
association and aggrieved homeowners, and as the court of appeals has stated, "the
conduct of the directors should be judged by the 'business judgment rule' and
absent a showing of bad faith, dishonesty, or incompetence, the judgment of the
directors will not be set aside by judicial action." Goddard v. Fairways Dev. Gen.
P'ship, 310 S.C. 408, 414, 426 S.E.2d 828, 832 (Ct. App. 1993) (citing 4 S.C.
Juris. Condominiums § 42 (1991)).
A corporation may exercise only those powers granted to it by law, its
charter or articles of incorporation, and any bylaws made pursuant thereto.
Seabrook Island Prop. Owners Ass'n v. Pelzer, 292 S.C. 343, 347, 356 S.E.2d 411,
414 (Ct. App. 1987) (citing Lovering v. Seabrook Island Prop. Owners Ass'n, 289
S.C. 77, 344 S.E.2d 862 (Ct. App. 1986), aff'd as modified, 291 S.C. 201, 352
S.E.2d 707 (1987)). A corporation's actions taken within the scope of the powers
granted it are considered intra vires acts; acts beyond the scope of its powers,
however, are ultra vires acts. See id. The business judgment rule applies to intra
vires acts of the corporation, but not to ultra vires acts. Id. In other words, while
the business judgment rule protects a corporation's exercise of its best judgment
when deciding between viable options in a given business-related situation, the
business judgment rule is not a cloak that protects a corporation from a violation of
its own bylaws.
Here, the court of appeals held that the trial court erred in finding the
business judgment rule did not apply because the Master Deed, Bylaws, and the
Act "applied instead." Fisher, 409 S.C. at 180, 760 S.E.2d at 130. Similarly,
Respondent contends that the "trial court concluded that because the [] Act, the
Master Deed, and the Bylaws all governed [the Board's] conduct, the business
judgment rule offers . . . no protection." To the extent that the trial court found that
Shipyard Village's governing documents and the business judgment rule are
mutually exclusive, we agree that the trial court erred. While any ultra vires action
of the Board, as well as any failure of the Board to comply with its affirmative
duties under the governing documents, are not subject to the business judgment
rule, the mere existence of the Master Deed, Bylaws, and the Act does not preclude
the application of the business judgment rule.
The court of appeals also found that the trial court "erred in finding that
because the [Board] committed two acts it found to be ultra vires, the business
[judgment] rule did not apply to any of its actions." Id. at 180–81, 760 S.E.2d at
130. We agree with the court of appeals. Even if the Board did commit ultra vires
acts, those acts would not preclude the Board from asserting the protection of the
business judgment rule for intra vires acts, made in good faith. On that note, we
emphasize that because the business judgment rule only applies where a
corporation acts within its authority, without corrupt motives, and in good faith,
see Kuznik, 342 S.C. at 599, 538 S.E.2d at 25, the court of appeals incorrectly
stated that "any investigation" conducted by the Board pursuant to its duty to
investigate "would be looked at under the business judgment rule to determine if
the [Board] met its duty." See Fisher, 409 S.C. at 181, 760 S.E.2d at 130.
Therefore, we affirm as modified the court of appeals' reversal of the trial
court's ruling on the business judgment rule. The trial court should permit
Respondent to assert the business judgment rule as a defense at trial. Nevertheless,
the Board will not be entitled to the protection of the business judgment rule if the
jury finds that the Board acted beyond the scope of its authority, or acted with
corrupt motives or in bad faith. Therefore, ultimately, the jury must decide
whether the Board violated the requirements of the Master Deed and Bylaws,
which of the Board's actions were intra vires and which were ultra vires, and the
impact of that breakdown on Petitioners' negligence claim.
II. Summary Judgment on Breach of Duty
Petitioners argue the court of appeals erred in reversing the trial court's
decision to grant them summary judgment on the issue of breach of the duty to
investigate. Respondent, on the other hand, contends that the record contains at
least a mere scintilla of evidence that Respondent did not breach its duty to
investigate, and thus, the Court should uphold the court of appeals' decision. We
agree with Respondent.
The issue of negligence is a mixed question of law and fact. Doe ex rel. Doe
v. Wal-Mart Stores, Inc., 393 S.C. 240, 246, 711 S.E.2d 908, 911 (2011) (citing
Moore v. Weinberg, 373 S.C. 209, 221, 644 S.E.2d 740, 746 (Ct. App. 2007)). A
court must first determine, as a matter of law, whether the law recognizes a
particular duty. Id. (citing Moore, 373 S.C. at 221, 644 S.E.2d at 746). If a duty
exists, the jury then determines whether the defendant breached the duty, resulting
in damages. Moore, 373 S.C. at 221, 644 S.E.2d at 746.
Here, the trial court ruled:
[The Board] had a duty to investigate[,] when presented with evidence
which would show or reasonably show that an individual [co-owner's]
neglect in maintaining his or her [u]nit has resulted in damage to the
common elements[,] that an investigation is required by the Bylaws.
That is the [Council] through its Board, upon receiving such
information, would be required to initiate some investigation to
determine whether or not it would be appropriate to individually
assess the defaulting [co-owner] for the damage . . . .
The trial court then found as a matter of law that the Board breached its duty when
it failed to determine: (1) whether the water intrusion damage to the common
elements of Buildings A and B was the fault of a particular co-owner, or group of
co-owners; and (2) whether other non-defaulting co-owners were entitled to a
rebate by individual assessment from the A and B co-owners who caused the
damage.
We find evidence in the record that could support the conclusion that the
Board indeed breached its duty to investigate. For example, there is evidence that
the Board had actual notice of the leaks occurring in Buildings A and B since
1983, that the co-owners in those buildings were neglecting the problems, and that
the co-owners' neglect to repair their own windows and doors caused damage to
the common elements. Further, as Petitioners point out, Respondent acknowledged
on the record that it never asked any qualified expert to allocate the damages to the
common elements attributable to the leaking windows and sliding glass doors and
the alleged failure of the co-owners to maintain those windows and sliding glass
doors.
However, when viewed in the light most favorable to Respondent, there is at
least a scintilla of evidence in the record to indicate an issue of material fact as to
whether the Board breached its duty to investigate, as set forth by the trial court.
See Bass, 395 S.C. at 134, 716 S.E.2d at 912; Fleming, 350 S.C. at 493–94, 567
S.E.2d at 860. In the years preceding the initiation of this lawsuit, the Board hired
numerous engineers and consultants to determine the cause of the water intrusion.
In addition to citing leaks around the windows and doors, these engineers and
consultants' reports attributed the water intrusion problems to the common
elements—including the stucco and various components of the building envelope
system. For instance, Keystone concluded that the water was leaking through the
stucco, and that non-existent window flashing was part of the problem. Moreover,
Schneider determined that the water was leaking at the "stacks" of the units, while
HICAPS informed the Board that the building envelopes were not water tight and
allowed water to enter the structures. In sum, there is evidence in the record to
support a conclusion that the water leaks occurred due to water intrusion through
the common elements, and thus, the Board could have made an informed decision
not to apportion the costs of the damage to the co-owners. As a result, the trial
court should not have decided the question of whether the Board breached its duty
to investigate as a matter of law.
Therefore, we hold that the trial court erred in granting Petitioners' motion
for summary judgment, as the jury should have decided whether the Board
breached its duty to investigate. Accordingly, we affirm the court of appeals'
decision on this issue.
CONCLUSION
Based on the foregoing, we affirm as modified the court of appeals' decision
and remand the case for trial.
AFFIRMED AS MODIFIED.
PLEICONES, C.J., BEATTY, KITTREDGE and HEARN, JJ., concur.