September 2003

FIDUCIARY DUTY: LOOKING OUT FOR "NUMBER 1" CAN LEAD TO TROUBLE

What happens when a majority of unit owners ban together and vote according to their own interests? Trouble in paradise may result. It is important for directors and officers not to lose sight of the responsibilities they assume when they are elected as directors and officers of a community association.

Recent recommendations by an Administrative Law Judge addressed the issue of what happens when members appear to run an Association for their own personal benefit. The Judge in Department of Business and Professional Regulation v. Walters, No. 02-2842, August 8, 2003, entered a Recommended Order. Though the $10,000 in penalties proposed to be levied against directors may seem initially harsh, when considering the facts the proposed penalties may be seen as lenient. The matters recited below are excerpted from the Recommended Order.

Arsenio Carabetta and Richard Walters were members of a condominium association administering a small two building condominium containing ten units. Mr. Carabetta refused to pay certain assessments claiming that the Association was not properly maintaining his unit and he filed several lawsuits against the Association and unit owners. Mr. Walters purchased four unfinished units at a foreclosure sale but refused to pay past or ongoing assessments resulting in Association liens for unpaid assessments. The Association imposed special assessments on other unit owners to make up the budget shortfall. The Association then filed a foreclosure action against Mr. Walters.

At an annual members meeting Mr. Walters, Mr. Carabetta, and one additional unit owner used their majority voting interests to elect themselves as directors. The board of directors voted to accept $10,000 from Mr. Walters as settlement of the lien foreclosure action. In addition, Mr. Carabetta agreed to dismiss his lawsuits and pay overdue assessments. Mr. Walters abstained from the vote which passed based on Mr. Carabetta’s sole affirmative vote. The Recommended Order indicated that Mr. Walters and Mr. Carabetta voted to fire the association’s attorney and hire their own attorney. The Association’s new attorney subsequently dismissed the foreclosure action against Mr. Walters.

In response to complaints from other unit owners, the Department of Business and Professional Regulation, the state agency charged with regulating condominiums, conducted an investigation. Among the Recommended Order’s conclusions were that Mr. Walters and Mr. Carabetta breached their fiduciary relationship to the unit owners by forgiving Mr. Walters’ past due assessments totaling over $50,000 and dismissing the lien foreclosure action in exchange for Mr.

Walters’ offer to pay $10,000 without reducing assessments for other unit owners. The Judge also recommended a finding that Mr. Walters and Mr. Carabetta failed to respond to numerous certified inquiry letters.

The Recommended Order noted that the only mitigating factor was that Mr. Walters and Mr. Carabetta relied on counsel’s advice. This defense was obviously not enough. The Judge recommended a civil penalty in the amount of $10,000 each and recommended Mr. Walters pay the Association $68,710.92 for assessments owed.

This decision points out how important it is for directors and officers to take their responsibilities seriously. Directors and officers owe a fiduciary duty to the other members of an association. If a conflict of interest arises, abstain from voting. If you are unsure about your responsibilities, contact your association’s counsel. If conflicts persist, think about stepping down from your position.

SMOKING: NO MORE LIGHTING UP DURING MEETINGS AND PARTIES

You may want to think twice about lighting up a cigarette or cigar during an association meeting or social function. The Florida legislature recently passed House Bill 63A, known as the "Florida Clean Indoor Air Act," which eliminates indoor smoking in most workplaces. The term "workplace" is given a very broad and expansive meaning under the statute. Basically, it covers any place where one or more persons engage in work, with very narrow exceptions, such as a private residence, a retail tobacco shop, a stand alone bar, or a room at an airport.

"Work" is defined as any person providing any employment or employment-type service for others whether for compensation or not and includes any service performed by an employee, independent contractor, manager, officer, director, or volunteer. The Act also applies to all community association meetings and social gatherings. Unless the meeting or social function is held in a private residence, the no smoking ban applies.

RESTRICTIONS: OLDER AGED COMMUNITIES

Did you know that the Florida Commission on Human Relations has moved? Why is this important to you? If your community is restricted for housing for older aged persons then your community is required to register upon its initial designation as a community for older aged persons and every two years on the anniversary of the first day of the month in which the community originally filed. The address for the filing is now: Florida Commission on Human Relations, Post Office Box 3388 Tallahassee, FL 32315-3388.

If you have not undertaken this registration, then please make certain you contact your community association attorney.

FIRM NEWS

The University of Miami has once again invited Michael J. Gelfand to speak at its 28^th Institute on Condominium and Cluster Developments. Mr. Gelfand will be the keynote speaker for the two day seminar to be held October 30, 2003 - 31, 2003. Please contact the University directly at 305-284-6276 for information on attending the seminar.

This information is provided for public information purposes only and is provided without obligation or fee. It is distributed to the firm's association clients to provide a general notice of recent legal changes. This information is not to be considered as legal advice. The changes in the law may not have been reviewed by Florida courts and may be subject to further challenge. Before taking any action you are urged to consult with counsel to ensure that your legal rights are protected.

© 2003 by Gelfand & Arpe, P.A.