STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS, AND MOBILE HOMES

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1 STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS, AND MOBILE HOMES IN RE: PETITION FOR ARBITRATION H. Graydon Hopkins, Janice D. Hopkins, Randall Graydon Hopkins, Stephen Alan Hopkins and Susan Hopkins Pharr, Petitioners, v. Case No Tamarynd Place Condominium, Inc., Respondent. / SUMMARY FINAL ORDER This final order is entered pursuant to rule 61B , Florida Administrative Code, which permits the arbitrator to enter a summary final order where there are no disputed issues of material fact. PROCEDURAL HISTORY According to the petition, on or about March 14, 2003, the respondent/association filed a lien foreclosure action in the circuit court for Collier County against the abovereferenced petitioners for failure to pay certain assessments. In response to the petitioners answer, which included affirmative defenses and counterclaims, the association filed a motion to dismiss challenging the counterclaims and affirmative defenses. On March 25, 2004, the foreclosure action was abated by the circuit court and the petitioners were ordered to file a petition for arbitration alleging appropriate counterclaims, affirmative defenses to the foreclosure action and other issues as disputes therein. In accordance with the circuit court s order, on May 5, 2004, the petitioners filed a petition for arbitration with the Division, naming Tamarynd Place Condominium, Inc. as the 1

2 respondent/association. On July 25, 2004, the association filed its answer to the petition for arbitration. On August 16, 2004, the case was reassigned to the undersigned arbitrator. FACTS In counts I, II and III of the petition for arbitration, the petitioners allege various violations, which occurred in the years 1998 through 2004, with the manner in which the board has conducted its annual elections and the manner in which the board has determined the staggered terms of its directors. Count IV alleges that the board of directors has taken official actions at meetings without a quorum of the directors present. Count V argues that the association has failed to conduct organizational meetings as required by the Florida Statutes and the condominium s by-laws. Count VI alleges that the association failed to obtain unit owner approval for an alteration to the condominium s common elements. In count VII, the petitioners allege that the board of directors has engaged in ultra vires acts. Count VIII alleges that the association improperly passed a rule limiting the terms of leases for the condominium units. In count IX, the petitioners argue that the association failed to properly amend the declaration and by-laws regarding a vote for proposed amendments taken at the 2004 annual meeting. Count X alleges that the budgets for the years 2001 through 2004 fail to include certain reserve accounts. In the final allegation, count XI, the petitioners allege that certain rules and regulations limiting the rights of unit owners to address the board at meetings are invalid. CONCLUSIONS OF LAW In response to some of the allegations listed above, the association argues that a dismissal is warranted based on the petitioners failure to comply with pre-arbitration notice requirements, as set forth in section , Florida Statutes. The association also 2

3 alleges that the disputes were either not raised as a counterclaim or affirmative defense in the petitioners answer to the foreclosure action or that the disputes do not involve compulsory counterclaims or defenses to the foreclosure action. In other words, the petitioners have included issues in this petition for arbitration that were not raised in the circuit court action. Specifically, the association argues that the allegations contained in count III are limited to the 2004 election and that the petitioners failed to provide proper pre-arbitration notice regarding this election dispute and that the petitioners failed to raise any issue regarding the 2004 election in their answer to the underlying foreclosure action. As the petitioners answer is dated July 2003, the allegations concerning the 2004 election could not have been raised because the election had not yet been conducted. It is also clear that a separate pre-arbitration notice letter has not been properly served on the association concerning the disputed 2004 election. Notwithstanding the circuit court s order for the petitioners to file a petition for arbitration, compliance with pre-arbitration notice under section , Florida Statutes, is still required. See e.g., Johnson, et. al. v The Alexandria Condominium Association, Inc., Arb. Case No , Order on Motion to Dismiss and Order to Show Cause (September 8, 1998)(arbitrator ruled that the combination of the petitioning unit owners written complaints and the complaint filed in circuit court by one of the petitioners regarding the same disputed issues achieves the purposes of the statutory notice requirement contained in section (4)(b), Florida Statutes). Accordingly, count III is dismissed without prejudice for failure to comply with statutory notice requirements. Similarly, the allegations contained in count IX also involve actions which took place in 2004, in that the petitioners argue that the association failed to properly amend the declaration and by-laws regarding a vote for proposed amendments taken at the 2004 annual meeting. These allegations were not included in 3

4 the petitioners answer filed in the underlying foreclosure action nor is there any indication that a separate pre-arbitration notice letter was served on the association before the initiation of the arbitration proceeding. Thus, count IX is dismissed without prejudice for failure to comply with pre-arbitration notice requirements. The association also points out that the allegations contained in count V, the board s failure to hold organizational meetings, were not alleged in the petitioners answer and no separate pre-arbitration notice was sent to the association regarding this dispute. Thus, count V is dismissed, without prejudice, for the failure to comply with pre-arbitration notice requirements pursuant to section , Florida Statutes. These dismissed counts, III, IV and V, exceed the scope of the case referred to the Division by the circuit court. The association also argues that objections to the rule regarding leasing of the condominium units contained in count VIII were first raised as a counterclaim in the underlying foreclosure action and such objections are not compulsory counterclaims or defenses to a lien foreclosure action. Thus, the association argues that notice requirements under section , Florida Statutes, have not been properly satisfied. However, notwithstanding the unrelated issues of the foreclosure action and the petitioners objections to the leasing rule, the association was provided notice of this dispute in the foreclosure action in that these issues were duly raised in the court proceeding. Accordingly, the arbitrator finds that statutory notice requirements were satisfied for the allegations described in count VIII of the petition for arbitration. Regarding count X, the association argues that these disputes should be dismissed based on the petitioners failure to comply with pre-arbitration notice requirements under section , Florida Statutes. The association further argues that the subject matter does not constitute a dispute as defined in section , 4

5 Florida Statutes. In count X, the petitioners allege that the budgets for the years 2001 and thereafter fail to include certain reserve accounts. Section , Florida Statutes, defines dispute as any disagreement between two or more parties that involves: (a) The authority of the board of directors, under this chapter or association document to: 1. Require any unit owner to take any action, or not to take any action, involving that owner s unit or the appurtenances thereto. 2. Alter or add to a common area or element. (b) The failure of the governing body, when required by this chapter or association document, to: 1. Properly conduct elections. 2. Give adequate notice of meetings or other actions. 3. Properly conduct meetings. 4. Allow inspection of books and records. Here, the petitioners are alleging that the board has failed to maintain proper reserve accounts in the condominium s budget since However, such a dispute is not within the jurisdiction of the arbitration division. See Dacher v. Heatherbrook Condominium Association of Boca Raton, Florida, Inc., Arb. Case No , Final Order Dismissing Petition for Arbitration Without Prejudice (May 21, 1997)(arbitrator lacked jurisdiction over claim alleging the association s failure to properly fund reserves); Greenfield v. Park Place Owners Association, Inc., Arb. Case No , Final Order Dismissing Petition for Arbitration (March 12, 1996)(the claim that the association places excess funds in reserve accounts in violation of IRS regulations, involves the financial operation of the association and does not fall within the definition of dispute ); Terry v. Hidden Forest Condominium Association, Inc., Arb. Case No , Final Order Dismissing Petition (June 27, 1994)(allegations that the association utilized incorrect accounting procedures are not 5

6 eligible for arbitration; allegations that the association failed to provide financial statement and that the association was not funding the reserve accounts do not state a cause of action for arbitration). Accordingly, count X of the petition is dismissed and the petitioners may file this dispute with a court of competent jurisdiction. The association argues that the allegations regarding a rule restricting unit owner participation at board meetings contained in count XI should be dismissed as the rule has never been enforced against the petitioners or any other unit owners. The association further argues that it is irrelevant that the board has not voted to rescind the rule in writing because the rule is not published as part of the current rules and because the board even acknowledges that the rule is void ab initio. As the petition fails to identify a single instance of how this rule has been enforced against the petitioners or how the petitioners have been directly or even indirectly affected by the enforcement of this rule, the issue is not ripe for arbitration. Pursuant to rule 61B , Florida Administrative Code, a dispute which is not a bona fide, actual and present dispute shall not be accepted for arbitration. Accordingly, count XI is hereby dismissed. The allegations contained in counts I and II of the petition allege that the board has improperly failed to hold elections to determine the terms of the directors for the years 1998 through 2004 and has illegally appointed directors to two year terms in violation of its bylaws for the years 1999 through It is clear that the elections conducted in the years 1998 through 2003 are not disputes eligible for arbitration as these elections are not actual and present disputes as any election irregularities during these years would have been mooted by the following year s election. See Cottone v. Bay Plaza Owners Association, Inc., Arb. Case No , Order (July 22, 1992)(arbitrator held that the cause of action regarding the 1991 election is extinguished when the election in 1992 is conducted). 6

7 Moreover, the association s answer indicates that in 2002, the board recognized that the staggered term system for its directors may not have been maintained properly. In an effort to rectify any mismanagement, all five board seats were declared open for the 2002 election. When only five individuals submitted their names for candidacy for the election, the board determined that pursuant to section (2)(d)1., Florida Statutes, an election was not necessary and all five individuals were automatically seated as board members. Section (2)(d)1., Florida Statutes, states that if the number of vacancies equals or exceeds the number of candidates, no election is necessary. The association has indicated that newly seated board members decide amongst themselves who would serve two-year terms and who would serve one-year terms. The petitioners argue that the condominium by-laws nonetheless require an election to determine the terms of the directors. Section 5.3 of the by-laws, as amended in 1993, provides the following: In order to provide for a continuity of experience by establishing a system of staggered terms, at the 1993 Annual Meeting the number of Directors to be elected shall be five (5). The two (2) candidates receiving the highest number of votes shall be elected for two (2) year terms. The three (3) candidates receiving the next highest votes shall be elected for one (1) year terms. Thereafter, the two (2) Director s receiving the highest number of votes shall be elected for two (2) year terms. As it is impossible for the by-laws to address every scenario that could arise in election procedures, the by-laws here do not address the situation where the number of vacancies on the board is equal to or exceeds the number of individuals submitting their names for candidacy. The provision above does not mandate that an election must be conducted each year to determine the staggered terms of the directors. Section 5.3 provides the mechanism by which the staggered terms of the board members are determined where an election is required, i.e., where the number of candidates exceeds the open board 7

8 vacancies. The petitioners argue that the minimal purpose of an annual election is to determine which board candidates will serve two-year terms and that section 5.3 of the bylaws mandates that the association must conduct an annual election or initiate a balloting procedure each year to determine the terms of the directors. The by-laws do not overrule the statutory provision that eliminates the need for an election where the number of candidates does not exceed the number of open board seats. Furthermore, the logical intent of the by-laws would not create a situation where an election would be necessary where the number of candidates equals the number of vacant board positions. A reasonable interpretation of section 5.3 results in requiring an election only where the candidates outnumber the open board seats. Moreover, while a voting or balloting procedure under section 5.3 could be utilized where the board candidates cannot determine which members will be given two-year terms and which ones will be given oneyear terms, the association s actions here by not conducting an election under these circumstances are reasonable and the less formal process of determining the terms for the board members saves the membership time and monetary expense associated with conducting an election. Accordingly, there is no violation found in the association s election procedure or the manner in which the board has determined the staggered terms of its directors in the years 1998 through ; thus, the relief requested in counts I and II of the petition will not be granted. In counts IV and VII of the petition, the petitioners allege that the board has taken official actions at director s meetings without a quorum of the directors present and has engaged in ultra vires acts. The petitioners argue that because the association failed to properly maintain its system of staggered terms for directors, the association business 1 This order does not rule on the 2004 election as the petitioners did not provide pre-arbitration notice for 8

9 conducted at meetings in the years 1998 through 2004 has been done without a quorum being present, thus, invalidating all such actions. Since it has been determined that the association has not violated section 5.3 of its by-laws in its election procedures or the determination of staggered terms for its directors, the the alleged violations concerning the 2004 election. 9

10 allegations contained count IV and count VII are hereby dismissed. 2 The petitioners allege in count VI that the association failed to obtain unit owner approval prior to materially altering the common elements with the installation of a new termite prevention system, in violation of section 11.1 of the declaration. The petitioners argue that the new termite system constitutes a material alteration to the common elements and was not purchased to repair, replace or maintain an existing system. The petitioners contend that the buildings within the condominium are constructed of concrete block and are thus not subject to termite infestation or damage. Furthermore, the petitioners argue that based on the concrete construction of the buildings, the termite system cannot be considered maintenance or necessary to extend the life of the condominium buildings. The association argues that the new termite system is maintenance and is permitted by section 11.1 of the declaration, which provides the following: The ASSOCIATION shall not make any material addition, alteration, change or improvement to the COMMON ELEMENTS or to the ASSOCIATION PROPERTY without the approval of the UNIT OWNERS,... The foregoing approval shall in no event apply with respect to expenses incurred in connection with the maintenance, repair or replacement of existing COMMON ELEMENTS or ASSOCIATION PROPERTY. As the new termite system was installed to replace the existing trench and treat termite system applied by Attack Pest Control, the association asserts that the new system qualifies as maintenance designed to provide continued protection for the condominium buildings. Contrary to the petitioners assertions, the association argues that the condominium buildings are constructed of concrete block and wood, which is subject to 2 In addition, the actions of board members taken in the scope of their duties are deemed valid and not ultra vires until and unless a court declares their election invalid. See The Little Mermaid Condominium 10

11 potential termite damage, and that such construction warrants the obligation for preventative maintenance. While the petitioners contend that the termite system is a material alteration and does not fall within the maintenance exception rule, the association argues that the termite system is simply replacing an existing system and therefore falls under the maintenance exception which does not require a unit owner vote. A material alteration is a change that palpably or perceptively varies or changes the form, shape, elements or specifications of a building from its original design or plan, or existing condition, in such a manner as to appreciably affect or influence its function, use or appearance. Sterling Village Condominium, Inc. v. Breintenbach, 251 So.2d 685 (Fla. 4th DCA 1971). However, where a change or addition is reasonably necessary for the maintenance or repair of the common elements, an association is not required to obtain the approval of the unit owners. See Tiffany Plaza Condominium Association, Inc. v. Spencer, 416 So.2d 823 (Fla. 2d DCA 1982)(court ruled that the rock revetment was necessary to protect the common elements from damage and unit owner approval was not required). In Cundiff, et. al. v. Flamingo Cay Apartments Association, Inc., Arb. Case No , Final Order (May 19, 1998), an association installed a new irrigation system to replace an existing system in disrepair. The arbitrator ruled that the board s action of replacing the faulting irrigation system constituted necessary maintenance and did not require unit owner approval even where the system covered areas not previously irrigated. In the instant case, the association previously engaged the services of a termite prevention company to treat its buildings with termite protection. While the newly installed termite system is undoubtedly different than the previous method by which the association chose to prevent termite infestation and damage and, as such, may constitute a material alteration, it is Association, Inc. v. Hogan, Arb. Case No , Summary Final Order (May 7, 1999). 11

12 necessary to explore the applicability of the maintenance exception under section In Bronstein v. Hills of Inverrary Condominium, Inc., Arb. Case No , Summary Final Order (March 24, 1995), the arbitrator ruled that replacing a chattachoochee decking with paver bricks was necessary for repair and maintenance and it was not unreasonable for the association to choose a newer model or even new materials when maintaining, repairing or replacing the common elements. See, A.N. Inc. v. Seaplace Association, Inc., Arb. Case No , Summary Final Order (November 19, 1998)(decision by the board to upgrade the condominium building s window system to a higher grade window upheld by the arbitrator); Carr et. al. v. River Reach, Inc., Arb. Case No , Final Order Denying Motion for Emergency Relief and Final Order Dismissing Petition (May 21, 2003)(arbitrator ruled that the association s decision to install an upgraded fire alarm system falls within the maintenance doctrine which the courts have recognized to operate to nullify the unit owner vote that otherwise would be applicable in material alteration cases). When considering the facts presented and the case law identified above, it is determined that the association s action of installing a new termite system to protect the condominium buildings from termite infestation and damage does not require unit owner approval as a material alteration to the common elements. The decision to install the new termite system operates under the maintenance exception rule, pursuant to section 11.1 of the declaration of condominium, and does not require unit owner approval. Furthermore, the association s decision to undertake the new termite control system is protected by the business judgement rule. Tilney v. Association of the Fountains, Inc., Arb. Case No , Final Order (February 7, 2003)(ruling that under the business judgement, a judge or arbitrator is required to afford the board s judgement wide latitude where the subject matter in which the board is operating is found to be infused with day to day business judgement 12

13 that can only be exercised by the elected board). The business judgement rule permits the board broad discretion in making decisions about the day-to-day operations of the condominium, including maintenance of the common elements. Accordingly, the addition of the new termite system does not require the affirmative vote of the unit owners as it falls under the maintenance exception of section 11.1 of the declaration of condominium. In addition, the board s decision to undertake the new system is protected by the business judgement rule; thus, the relief requested by the petitioners regarding count VI is not granted. In the remaining allegation of the petition, count VIII, the petitioners argue that the board of directors passed certain rules and regulations limiting the rights of unit owners to lease their condominiums. The petitioners allege that section 19.6 of the declaration requires unanimous approval of the owners in order to place any restrictions on leasing, other than limiting lease terms to not less than three months. 3 The petitioners allege that a vote was never conducted to approve rules promulgated by the board of directors in April 2003, which impose more restrictive leasing requirements. In response thereto, the association has admitted that the board promulgated certain rules and regulations in April 2003 to restrict leasing of the condominium units. However, the association contends that these rules have not been enforced and considers such rules invalid. Moreover, in February 2004, the association alleges that the members approved an amendment to section 19.6 which renders the 2003 rules and the petitioners claims regarding these rules moot. The petitioners have not argued that the 2004 amendment to section 19.6 is invalid 3 The association contends that section 19.6 was amended in 1993 to delete the unanimous unit owner approval requirement. As the petitioners have not challenged the 1993 amendment, this order does not address its validity (that is not to say that the arbitrator would entertain a dispute that originated over 10 years ago). Accordingly, the rulings herein operate under the basis of the amended version of section 19.6 which no longer requires unit owner approval. 13

14 or unenforceable. Accordingly, the petitioners claims regarding the 2003 rules are moot as the association does not contest the validity of the rules and passed an amendment in 2004 replacing the invalid rules. Thus, the relief requested in count VIII is denied. Based on the foregoing, the relief requested in the petition is denied on all counts. DONE AND ORDERED this 24 th day of November 2004, at Tallahassee, Leon County, Florida. Melissa Mnookin, Arbitrator Department of Business and Professional Regulation Arbitration Section Northwood Centre 1940 North Monroe Street Tallahassee, Florida Certificate of Service I hereby certify that a true and correct copy of the foregoing summary final order has been sent by U.S. Mail to the following persons on this 24 th day of November 2004: Glenn J. Ballenger, Esq. Kraus & Ballenger, P.A Goodlette Road North Naples, Florida Richard DeBoest, II, Esq. DeBoest Knudsen Stockman Decker and Dryden, P.A Hendry Street Fort Myers, Florida

15 Melissa Mnookin, Arbitrator Right to Appeal As provided by section , F.S., a party which is adversely affected by this final order may appeal by filing a petition for trial de novo with a court of competent jurisdiction in the circuit in which the condominium is located, within 30 days of the entry and mailing of this final order. This order does not constitute final agency action and is not appealable to the district courts of appeal. Attorney s Fees As provided by section , F.S., the prevailing party in this proceeding is entitled to have the other party pay its reasonable costs and attorney s fees. Rule 61B , F.A.C., requires that a party seeking an award of costs and attorney s fees must file a motion seeking the award not later than 45 days after rendition of this final order. The motion must be actually received by the Division within this 45-day period and must conform to the requirements of rule 61B , F.A.C. The filing of an appeal of this order does not toll the time for the filing of a motion seeking prevailing party costs and attorney s fees. 15