Condo Remedies

Arbitration Not Required by FS718 if alleging breach of fiduciary duty

While most garden-variety disputes between unit owners and their condominium associations are mandated by law to go to nonbinding arbitration before going to court, certain types of more complex disagreements are specifically excluded from this requirement and can proceed straight to trial.

The latest ruling over whether a dispute between an owner and a condominium association involving an addition to a common element was required to first go to arbitration before trial came in the case of Palisades Owners’ Association v. Thomas F. Browning before Florida’s First District Court of Appeal.

Dan Phillips and Jamey Phillips, who each own a unit in the Palisades condominium in Panama City, Fla. and serve on the association’s board of directors, added a boat lift to the community’s dock in 2016 for their exclusive use without prior approval from the other unit owners.  As a result, unit owner Thomas F. Browning sued the association, which moved to dismiss the suit based on the contention that it must first be submitted to nonbinding arbitration in accordance with The Condominium Act.

Because the complaint included claims of breach of fiduciary duty by the association, the trial court concluded that Browning’s claims were specifically excluded from the class of disagreements required to be submitted to arbitration under the law.

In its review of the lower court’s decision, the First DCA found that any alteration to the community’s common elements requires the approval of at least three-fourths of all of the unit owners, according to the community’s bylaws.  In response to Browning’s initial complaint to the board that the unapproved boat lift violated the community’s bylaws and must be removed, the directors (including Jamey Phillips) voted to amend the community’s by-laws to allow for temporary personal boat docks.

Browning subsequently sued the association, which responded by asserting that the dispute was subject to the alternate dispute resolution procedures provided under The Condominium Act before going to court.

In confirming the trial court’s decision, the appellate panel found that Browning’s complaint did not allege a dispute within the meaning of section 718.1255, Florida Statutes, and therefore he was not required to submit his claim to arbitration prior to filing suit in court.  Its conclusion is based on the clear and unambiguous language in the statute specifically excluding from the definition of dispute several categories of more complex disagreements between unit owners and condominium associations including title claims, interpretation or enforcement of a warranty, fee assessments, evictions, breaches of fiduciary duty,and claims for damages for failure to maintain common areas.

The panel concluded that the suit goes beyond a factual dispute about changes to the common areas and alleges a breach of fiduciary duty by the association through the action of two of its board members, conflicts of interest, and violations of the bylaws.  Because the complaint alleges a “breach of fiduciary duty by one or more directors,” the appellate court upheld the trial court’s ruling that the disagreement does not fall within the statutory definition of a dispute that must be submitted to arbitration before filing suit.

This ruling illustrates how directors who implement changes to the common elements for their own personal benefit without prior membership approval in accordance with their community’s bylaws will not be shielded from potentially costly litigation by the state law requiring pre-trial arbitration.  Disputes involving such actions will typically include allegations of breaches of fiduciary duty, making them specifically excluded from the arbitration mandate.