A homeowner whose home is located within and governed by a homeowner’s association (“HOA”) often believes that the HOA has a valid claim that should be asserted against the developer of the HOA. This often involves a belief that the developer has not contributed the full amount of money that he owes to the HOA, according to the HOA documents. In such a situation, typically the HOA’s board of directors would be the ones to decide whether or not to assert such a claim. However, it is also often the case that the HOA’s board of directors is controlled by or related to the developer, in which case it is highly unlikely that the HOA board of directors will assert a claim against the developer.
In such a situation, there does exist another mechanism that would allow the homeowner to assert the claim on behalf of the HOA. This mechanism is a type of lawsuit known as a shareholder derivative action, in which an HOA member brings a lawsuit on behalf of the HOA, for the benefit of all of the members of the HOA. Florida courts have made it clear that a shareholder derivative action can be asserted by a homeowner on behalf on an HOA.
For example, the Fifth District Court of Appeal has explained that, “A derivative suit [...] is a cause of action on behalf of a stockholder or member to enforce a right of action that exists on behalf of the corporation. [...] It seeks redress for an injury suffered by the corporation, including non-profit corporations, such as the HOA.” Udick v. Harbor Hills Development, L.P., 179 So.3d 489 (Fla. 5th DCA 2015) (internal citations omitted).
Florida Statutes §617.07401 governs shareholder derivate actions brought on behalf of non-profit corporations. Most HOAs are non-profit corporations. Subsection (2) of the statute requires a pre-suit demand to be sent to the board of directors of the corporation at least 90 days prior to filing the action, demanding whatever action of the board that the homeowner is seeking. A developer-controlled board would likely ignore any demand that they sue the developer.
A homeowner who decides to file a shareholder derivate action should be sure to comply with the pre-suit demand and 90-day waiting period requirements because the Fourth District Court of Appeal has explained that, “Noncompliance with the pre-suit requirements of section 617.07401 mandates dismissal of the suit.” Collado v. Baroukh, 226 So.3d 924 (Fla. 4th DCA 2017).
A homeowner should also note that subsection (4) of the statute provides that a shareholder derivative action cannot be settled without court approval and notice to all the HOA members. This is due to the fact that a shareholder derivative action is asserted on behalf of the HOA for the benefit of all of its members.
So, if you believe that your HOA board members have declined to assert a valid claim against the developer because they are controlled by or related to the developer, keep in mind that there is another method for asserting such a claim, in the form of a shareholder derivative action.