Breach of Fiduciary Duty

Facts

Plaintiff, Ms. Carmichael, is on the board of directors of Commerce Towers Condominium (“Association”).  On the board with her is Mr. Frese and Mr. Vickers.  Mr. Vickers, Mr. Frese and Mr. Tarantino are the officers of the Association. (collectively “Officers”).  All three are also the officers of Tarantino Properties, Inc. (the “Management Company”). Carmichael and other unit owners (collectively “Owners”), individually and on behalf of the Association, sued the Officers and the Management company for breaches of fiduciary duties and for unjust enrichment because the Officers caused the Association to provide for the maintenance and preservation of property that was not part of the Association (the retail space of the buildings).  The Officers and Management Company asserted that the Owners did not have standing to sue on behalf of the Association (a derivative suit).
Continue Reading Self-Dealing by Director is a Breach of Fiduciary Duty (Case 2)

Facts

Plaintiff, Coley, owns a home in an HOA, the Eskaton Village (“Association”).  Two other Eskaton named entities (“Eskaton”) develop and support HOAs.  A five-member board runs the Association, subject to the Declaration.  Eskaton has always controlled three of the five directors on the Association Board because it owns 137 of the 267 units.  The three directors are always employees of Eskaton and are “financially incentivized to run the Association for the benefit of Eskaton.”  In short, the better Eskaton performs the higher their compensation, which is directly related to the expenses of the Association.  Coley, one of the other two directors, filed suit because of various acts by the other directors to benefit their employer at the expense of the Association, including disclosing attorney client privileged communications.
Continue Reading Self-Dealing by Director is a Breach of Fiduciary Duty (Case 1)

Facts

Plaintiffs were two owners (Maples and Brown) at Compass Harbor Village Condominium Association in Maine (the “Association”) who had purchased their respective units sometime in 2007.  The Declarant was an LLC that held more than 50% of the votes (15 of the 24 units) and therefore controlled the board.  For many years the Association common areas were not property maintained in many ways.  In addition, the Association failed to hold meetings, take votes on Association matters, maintain banking or other records and refused to provide financial information to the owners.  The Declarant’s position was that “because it holds a majority of the voting power in the Association and therefore any dispute between it and any of the unit owners would ultimately be decided in its favor.”  Plaintiffs claimed to have lost about $53,000 in value in each of their units because of the actions of the Declarant.
Continue Reading Failing to Maintain and Properly Collect Assessments is a Breach of Fiduciary Duties

Facts

David Bagwell was the developer of three homeowners’ associations (HOAs).  David and his wife Susan (the Bagwells), acted as directors of each of the HOAs.  Sister Initiative, LLC (the LLC) loaned money to the HOAs and was owned by Bagwells’ daughters.  Susan Bagwell was the manager of the LLC.  The Bagwells also owned several other businesses that interacted with the HOAs.  In 2010 the LLC loaned the HOAs $120,000, allegedly because of the downturn in the economy.  In 2011 the Bagwells were ousted as directors, and the LLC sued to recover on the loans.  The use of the funds is the heart of the case, as the HOAs argued that the funds were funneled to improper uses.
Continue Reading Association NOT Liable for Loans Made By Developer Related Entity

FACTS

David Jensen, a longtime municipal judge, respected civil servant, and owner of an insurance company embezzled more than $40,000 from his homeowner’s association (HOA) in the last three years.  This is the second case of this nature in Wisconsin that I have seen in the last four years.  How did the HOA discover the thefts?  According to the Lake Geneva Regional News, Jensen had been treasurer of the HOA for 11 years and after his death on February 8, 2020, the new treasurer found a number of financial discrepancies.  The HOA contacted the police, who investigated the facts and after speaking with Jensen’s wife determined that Jensen “acted alone in the thievery.”  Because of Jensen’s death, no criminal charges will be brought.
Continue Reading Director & Officer Theft of Funds–Your Community Association Needs Fidelity Insurance

Summary

Declarant owned nine of 10 units, controlled the board and association, failed to have an association bank account, intermingled the assessments that were paid into his business account, never held elections or annual meetings and kept no separate corporate records.  Yet, the Court held that these failures could not be used as an excuse for not paying assessments that were due under the condominium documents.  In other words, you bought into an association, pay your assessments.
Continue Reading Owners are Liable for Assessments, Even When Corporate Formalities Not Perfectly Followed

Summary

When faced with the question of how much is too much for a “reasonable fee” the US Court of Appeals for the 7th Circuit held that it could not answer the question because the right parties were not before the court.

The Facts

Keith Horist owned a condominium in downtown Chicago building’s condominium association. Joshua and Lori Eyman also owned a condominium in Chicago, but at a difference association. Both associations hired Sudler Property Management to manage their day-to-day operations.

In 2017 Horist and the Eymans put their units up for sale and found buyers.
Continue Reading How Much Can an Association Charge for Providing Disclosure Documents as Part of a Sale?