Fiduciary Duty

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Fiduciary Duty
Facts

In 2014, Kato purchased a unit at an association, thereby becoming a member of the association. Kato also joined the board and became its President/Treasurer.  Later that year, Kato’s unit, and two other units in the association were destroyed by fire.  The association collected the insurance proceeds from the loss, but decided not to rebuild.  Kato was the president was president at the time and remained president until 2020.  Three years later the association entered into a “Confidential Settlement Agreement” (“CSA”) with the three units for their fire losses, and as part of that agreement was obligated to pay Kato $30,500.  The payment was to be made in installments and until the last payment was made Kato would:

“maintain all rights detailed in the By-Laws of [the Association]. On the other hand, the Members shall omit any responsibilities related to fees (such as maintenance fees) detailed by the By-Laws of [the Association]. When the settlement amount for each Member [has] been paid in full, the Members shall forfeit all rights and responsibilities[ ] granted by the By-laws, related to the units mentioned in the foregoing.”

Two years later, in 2019, while Kato was still president, the association sued Kato for allegedly stealing “hundreds of thousands of dollars from the Association.”  In January of 2020 Kato was removed as an officer and director of the association.

Six months later, Kato sued the manager, board members, attorney for the association, and the association claiming the officers and directors had breached their fiduciary duties, that the attorney had engaged in deceptive trade practices and seeking an order prohibiting the association from paying the management company or allowing the management company to take any action on behalf of the association.

Two months later, on September 10, 2020, the association tendered to Kato the last of the payments due him under the CSA.  “Kato refused to deposit the check.”…
Continue Reading Former Association Member Can’t Sue for Breach of Fiduciary Duty

Documents
Facts

Defendant, Castletown Corner Owner’s Association, Inc. (“Association”), had a duty to maintain a lift station.  Specifically, the declaration imposed an obligation on the Association to pay “all Maintenance Costs in connection with” improvements constructed at the Association.  Maintenance costs are then defined as “all of the costs necessary to maintain the … sewers, utility strips, and other facilities … and to keep such facilities operational and in good condition, including, but not limited to, the cost of all upkeep, maintenance, repair, replacement … for the continuous operation of such facilities.”  Plaintiff, owner of one of the commercial units, sued the Association for failing to properly maintain the lift station after an incident where the sanitary lift station malfunctioned and flooded the building with human sewage, which allegedly caused Plaintiff’s tenant to terminate its lease. …
Continue Reading Language in Declaration Makes Association Strictly Liable

Emotion Faces

Mental health issues can impact community associations in a myriad of ways.  Often Associations become the “reluctant care provider” (owners have no family/next of kin, or the family “dumped” the owner in the Association rather than in a care facility).  This can be true of older residents (“aging-in-place”) as well of younger residents.  The COVID pandemic, and the corresponding year of lockdowns, has added extra stress and increased isolation, exacerbating existing mental health conditions.  This has led to an increase of emotional distress, substance abuse, and suicides.

Because community associations are communities, issues that arise with one resident can interfere with another resident’s use and enjoyment of their property.  Mental health issues don’t always stay “contained” within the affected owner’s property – noise, shouting, threats, trespassing, damage to property, physical violence – all can interfere with other residents’ quiet enjoyment of their property.  While these issues can manifest themselves as harassment and hostilities, they can also lead to dangerous situations.  [To read more on dealing with harassment and hostile environment, click HERE.]

While it is not the Association’s responsibility to determine if someone has a mental disability, it is the Association’s responsibility to help ensure that all residents live harmoniously.  …
Continue Reading Tackling Mental Health and Aging Issues in Your Community Association

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)

Fiduciary Duty
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)

Dilapitated House

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

Finger Flick
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

By Golly
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

This is Too Much
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?

Follow the Rules
Facts

When you are headed down the wrong path – TURN BACK.  This applies to owners and associations when they act on their belief of what their documents say, but then learn that their understanding may be wrong.  Often parties who make a mistake, or learn that they might have made a mistake, refuse to reevaluate their situation and at least allow turning back to be an option.  Such appears to have been what happened in the recent case of Fritz v. Lake Carroll Property Owners Association, Inc., (2019 unreported case out of Illinois) where the association passed a rule that required inspection and pumping of the owners privately owned septic system every four years and that if an owner failed to follow the rule they would be fined $250 and $25 per day.  …
Continue Reading Wisconsin Condominium and Homeowner Association Owners Need to Follow their Rules Even When they Are Not Recorded.