v. Case No FINAL ORDER DENYING MOTION FOR EMERGENCY RELIEF AND FINAL ORDER DISMISSING PETITION

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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 Brenda Carr and Virgil Rizzo, Petitioners, v. Case No River Reach, Inc., Respondent. / FINAL ORDER DENYING MOTION FOR EMERGENCY RELIEF AND FINAL ORDER DISMISSING PETITION Comes now, the undersigned arbitrator, and issues this final order as follows: Petitioners Carr and Rizzo filed their petition for arbitration in this matter on May 15, The petition alleges that the association plans to install an upgrade to the fire alarm system in Building II without having first secured a vote of the owners, in violation of s (2), F.S. and the condominium documents. The declaration in article V provides that the association may make additional permanent improvements on the common elements only with the consent of the owners of 89 or more of the parcels. There are approximately 111 units in the condominium. Along with the petition, Carr and Rizzo filed a request for expedited determination of jurisdiction and a motion for emergency temporary relief. According to the motion for emergency relief, petitioners on May 13, 2003, sought a temporary injunction in circuit court but the judge declined to assume jurisdiction over the dispute until and unless the dispute was filed with the Division for arbitration. Further according to the motion, the association notified the owners that it plans to 1

2 proceed with the fire system upgrade beginning on May 17, Petitioners in their motion maintain that the petitioners as unit owners will be denied their substantial voting rights if the project is permitted to proceed without the vote they maintain is required by the documents. Petitioners also allege that they will be irreparably harmed if the association is permitted to enter the units and place fire horns inside each unit and strobe lights in the halls of Building II. The association maintains that pursuant to the duty of the board to maintain and protect the common elements, no unit owner vote is required. The association does not believe that the fire system upgrade constitutes a permanent improvement within the meaning of the documents, and the association further maintains that the Fire Marshall of the City of Ft. Lauderdale has required the association to undertake the upgrade to the fire safety system. A hearing on the motion for temporary injunction was held pursuant to notice on May 20, The issuance of a preliminary injunction is an extraordinary remedy that should be granted sparingly. Islandia Condominium Association, Inc. v. Vermut, 438 So. 2d 89 (Fla. 4 th DCA 1983). A preliminary injunction must be based upon a showing of irreparable harm, a clear legal right, an inadequate remedy at law, and considerations of public interest. Islandia at 89. According to the testimony of the Fire Marshall of the City of Ft. Lauderdale, the association is required to upgrade the fire alarm system in Building II at the present time. The association had undertaken some repairs to its 30-year old elevator system, and in the course of the elevator work and in obtaining a building permit for the work, the association was required to upgrade its fire safety system and integrate that system with the elevator 2

3 mechanical and fire alarm and detection systems. Although the city has not issued a formal citation or notice of violation, the fire marshal did issue a preliminary comment form that specified the manner in which the building s current fire alarm system fails to conform to the state fire code. The building fails to conform to current code requirements in the areas of audibility, audio-visual signals for the hearing impaired, and pull station heights. The project calls for installing horns in the individual units, mounting visual strobe lights in the common element hallways, and changing the height of the pull stations for the alarm stations. The cost of the system falls between $180 to perhaps $430 per unit depending on the size or percentage ownership of each unit. If the association had failed to agree to remedy the violations and to cooperate with the office of the fire marshal to bring the building up to code, the fire marshal would doubtless have issued a formal notice of deficiency which would subject the association to fines and legal enforcement proceedings. 1 The board voted pursuant to its fiduciary duty to the residents and in the exercise of its business judgment in favor of upgrading the current fire safety system in Building II. Upgrading the system also operates to benefit the firefighters who are summoned to the building in the event of a fire. With the new system, the elevators will be keyed and available for firefighters to use in gaining access to the fire. Also, residents riding in the elevator under the new system will not be trapped and in jeapordy of having the elevator stop on the floor containing an actual fire. The board did not take either a formal unit owner vote or a straw vote of the owners on this 1 The arbitrator rejects the petitioners argument that since the fire marshal has issued no formal notice of intent to prosecute, the association is not required to comply with the changes required by the fire marshal. The board may properly decide in its exercise of business judgement to forego the specter of large fines and expensive litigation and appeals by agreeing at this stage of the proceeding to comply with the directives of the City of Ft. Lauderdale. 3

4 project. The board was operating within the business judgement rule when it decided to proceed with this life safety improvement. Under the business judgement doctrine, a judge or arbitrator is required to afford the board s judgement wide latitude where the subject area in which the board is operating is found to be infused with day to day business judgement that can only be exercised by the elected board. Tilney v. Association of the Fountains, Inc., Arb. Case No , Final Order (February 7, 2003). 2 Here, there is evidence that the board considered various options and decided on a course that would bring enhanced fire readiness and safety to the residents of the building. The board was acting consistent with its duty to maintain and protect the condominium property and its residents as expressed in ss (1) and (1)(a),(3),(4), F.S. According to s (2), F.S., there shall be no material alteration or substantial additions to the common elements except in the manner provided for in the declaration. If the declaration is silent, 75% of the total voting interests must approve material alterations or substantial additions. In Sterling Village Condominium, Inc. v. Breitenbach, 251 So. 2d 685 (Fla. 4th DCA 1971), the court announced that as applied to buildings, "...the term "material alteration or addition" means to palpably or perceptively vary or change the form, shape, elements, or 2 The arbitrator in Tilney, surpa, ruled that the degree of maintenance chosen by the board with regards to a parcel of land used as additional parking and recreation is entitled to a presumption of correctness, with the arbitrator noting: That the board has determined to maintain the area to a higher standard than previously prevailed within the parcel does not remove the decision from the ambit of business judgement. Instead, the choice by the board to maintain the property in a more developed state is in the nature of a maintenance decision that comes within the Tiffany exception to the material alteration requirements of the statute and documents. 4

5 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." The Sterling Village decision has served as the basis for over two decades of appellate and lesser decisional law by which the Sterling court's test has been applied and re-applied to greatly varied factual circumstances. See, for example, the court and arbitration cases summarized in Celentano v. Reflections on the River Association, Inc., Arb. Case No , Final Order (December 16, 1994). It is arguable that the upgrade to the fire safety system has caused a material alteration to the common elements. The specifications of the old fire safety system will change, the appearance of the building will change, and the function of the system will change (this in fact is the impetus for the upgrade). Individual horns will appear in the units, strobe alarms will be mounted in the common element hallways that were previously void of fire alarm equipment, and the auditory signal of the alarm system will be boosted. However, the arbitrator finds that the upgrade sought to be installed by the association fits squarely in the maintenance doctrine that has been recognized by the courts to nullify the owner vote requirement that otherwise would be applicable in material alteration cases. In the case of A.N. Inc. v. Seaplace Association, Inc., Arb. Case No , Final Order (November 19, 1998), an owner filed a petition for arbitration seeking to challenge the board s decisions to replace, rather than simply repair, 406 common element window systems. The owner argued that the board s decisions resulted in a material alteration or substantial addition to the common elements. According to the final order: 5

6 The arbitrator notes that the case law has created an exception to the requirement that, if required by the documents, unit owners approve material alterations, where such alterations by the association are shown to be necessary to maintain or protect the common elements. In Ralph v. Envoy Point Condominium Association, Inc., 455 So.2d 454 (Fla. 2d DCA 1984), the court held that the construction of a seawall fronting the common elements did not require a vote of the unit owners where the construction was necessary to protect the common elements. The court stated: Simply because necessary work for maintenance may also constitute alterations or improvements does not nullify a condominium board's authority and duty to maintain the condominium common elements. Accordingly, in the present case, even if the new windows are deemed to be a material alteration to the common elements, such alteration would not require a vote of the unit owners where the replacement of the windows is reasonably necessary for maintenance. The association points out that, under article 11(a) of the declaration, it is responsible for maintaining, repairing and replacing "all windows and screening. " The association further points out that the arbitrator should not substitute his judgment for that of the board, citing Raska v. The Fountains of Ponte Vedra, Inc., Arb. Case No , Order (January 21, 1994)(Board's decision regarding the degree of maintenance required for a chain-link fence and painting of apartment doors was a business judgment, and the arbitrator would not substitute her judgment for that of the board). In Raska, the arbitrator noted that the board makes the day-to-day decisions affecting the general and routine maintenance of the common elements, under the association's authority pursuant to Section (l), Florida Statutes, to maintain the common elements. In the present case, the board could have chosen, as petitioner apparently would prefer, to replace only those windows currently leaking and to wait until the other windows fail, and replace them piecemeal; it could also have chosen a cheaper or less wind-resistant type of window. However, because the decision to replace all the windows in question and the choice of the type of window used fall within the board's discretion to make decisions regarding the maintenance of the common elements, the association's motion for summary disposition as to Count I, the window 6

7 project, will be granted.6 6 In Bronstein v. Hills of Inverrary Condominium, Inc., Arb. Case No , Final Order (March 24, 1995), the arbitrator held that the decision to replace a chattahoochee pool deck with paver bricks fell within the board s duty to repair and replace the common elements. The fact that the law requires, in many instances, a vote of the owners for material changes does not require that the association remain frozen in technological time. In many instances, it seems that a board in the exercise of its well-reasoned and documented judgement could and should take advantage of changes in technology, building materials, and improved designs, subject to the considerations noted infra. Another arbitration case that explores the connection between material alterations and needed maintenance is O Neil v. Coral Isle East Condominium Association, Inc., Arb. Case No , Final Order (June 28, 1994). In Coral Isle, the owner filed a petition for arbitration against the association seeking a determination of whether the construction by the board of a containment structure to house a recycling facility and a number of waste drums constitutes a material alteration to the common elements, where local ordinances required the condominium to have such a recycling facility. After concluding that a material change to the common elements had occurred, the arbitrator analyzed the interplay between local ordinances and the material change requirements: Judicial analysis of the proper scope to be given section (2), Florida Statutes, and the corresponding portions of condominium documents has not been so unforgiving as to prohibit the board, acting without a vote of the unit owners, from repairing and protecting the condominium property when shown to be necessary in the reasonable exercise of its business judgment. Under the case law, changes necessary to protect the property relate more to the maintenance and protection function of the board, and being treated as a maintenance function, are perceived to be exempt from the potentially harsh application of section (2), Florida Statutes. The court in Tiffany Plaza Condominium Association, Inc. v. Spencer, 416 So. 2d 823 (Fla. 2nd DCA 1982), held that unit owners could be assessed for the cost of a rock revetment without their consent, if it is 7

8 determined that the revetment is necessary to protect the common elements:...if, in the good business judgment of the association, such alteration or improvement is necessary or beneficial in the maintenance, repair, or replacement of the common elements, all unit owners should equally bear the costs as provided in the declaration, bylaws, and statutes. The trial court erred when it concluded that objecting owners should be relieved from the initial costs thereof even when the alteration or improvement was for the purpose of maintaining the common elements. [Id. at 826]. * * * 11. The basis for Tiffany Plaza, Cottrell, and Envoy Point, supra, is a judicial recognition of the statutorily imposed duty of the board of administration to maintain and protect the common elements. Maintenance of the common elements is specifically made the responsibility of the association under section (1), Florida Statutes, and the association under section (4), Florida Statutes, has the power to make and collect assessments and to maintain, repair, and replace the common elements. Section , Florida Statutes, authorizes the association to assess the membership, as a common expense, for the legitimate expenses incurred in the operation of the association. 12. The issue presented, then, is whether the board's duty to maintain and operate the common elements of the condominium is broad enough to encompass operational activities designed to bring the association in conformity with existing local ordinances. It could not be seriously argued that the developer of a condominium, in its construction activities, is free to ignore local building codes and standards. Obviously, local government ordinances apply to condominiums. Review, the opinion of the Attorney General reported at (August 9, 1974), in which Assistant Attorney General Michael Parish concludes that a condominium project which constitutes an actual division of a parcel of land within the scope of Chapter 163, Florida Statutes, subjects the developer to municipal regulations under that chapter. The opinion notes: It should also be noted that even when a 8

9 condominium project does not constitute "the division of a parcel of land" it is nevertheless subject to local regulation. See also, Poliakoff, Law of Condominium Operations , wherein the jurist states: Generally it is possible for cities, counties, and states to have legislation in regard to the same subject. For instance, legislation prohibiting discrimination in housing may typically be found in federal, state, and county codes. Such legislation obviously applies to residential condominiums, as it applies to all other housing. Therefore, the condominium association practitioner would be well-served to look into legislation at all levels in the state, to be certain about the existence and contents of applicable law. State and local legislation affecting condominiums include such subjects as health, safety and employment-related laws. For example, fire codes are relevant to condominiums at the operations stage as they pertain to the number of fire extinguishers a building must have and whether barbecuing is allowed on balconies. Similarly, health codes apply when there are regulations governing such things as garbage disposal in high rises and swimming pool inspections for cleanliness. [Emphasis added]. It would seem similarly ludicrous to argue that fire, health, pool, and garbage disposal regulations do not apply to condominium associations. These are the traditional areas of local regulation. An association's duty to maintain and operate the common elements implies maintenance and operation according to some standard, and where it is shown that applicable local ordinance defines the applicable standard, it is within the purview of the board's authority under sections (4) and (1), Florida Statutes, to operate the property in a manner consistent with those local ordinances. A final case for consideration is Schwartz v. Brickell Townhouse Association, Inc., Arb. Case No , Final Order (December 2, 1996), in which an owner argued that the construction of an engineered life safety system on the condominium property, which included the addition of a generator and fire pump and a structure to house them, constituted a material alteration to the common elements requiring a 9

10 vote of the membership. According to the facts, the condominium was damaged by Hurricane Andrew, and in connection with repairs to the buildings, the Fire Marshal for the City of Miami required the association to comply with the upgraded requirements of the National Fire Protection Association Life Safety Code which had been adopted by the South Florida Building Code and the South Florida Fire Prevention Code. In order to comply with the life safety code, the association was required to either install sprinklers or to have an engineered life safety system approved by the City of Miami. The arbitrator concluded that the addition of the life safety system constituted a material alteration to the common elements, but held that since the system was required by local code, no vote of the owners was required consistent with Tiffany Plaza, supra. The arbitrator analyzed the role of the business judgement rule as follows: It is well known that corporate directors generally have a wide discretion in the performance of their duties. Actions taken by the board within the scope of its authority are presumptively correct, and a court generally will not substitute its judgment for that of the directors, absent a showing of mismanagement, fraud, or breach of trust. 8 Fla. Jur. 2d Business Relationship, Sections 290, 363; Lake Region Packing Association, Inc. v. Furze, 327 So. 2d 212 (Fla. 1976); International Insurance Co. v. Johns, 874 F. 2d 1447 (11th Cir. 1989); Yarnell Warehouse & Transfer, Inc. v. Three Ivory Bros. Moving Co., 226 So. 2d 887 (Fla. 2d DCA 1969). This deference given to the board is known as the business judgment rule. In International Insurance, supra, the court described the business judgment rule as follows: The business judgment rule is a policy of judicial restraint born of the recognition that directors are, in most cases, more qualified to make business decisions than are judges. Mills v. Esmark, Inc., 544 F. Supp. 1275, 1283 n.3 (N.D. Ill. 1982). The rule s essential premise is that absent any wrongdoing, the board s business decisions should not be a fodder for in-depth ex post legal scrutiny. 10

11 Sinclair Oil Corp. v. Levien, 280 A. 2d 717, 720 (Del. 1971); Shlensky v. Wringley, 95 Ill.App.2d 173, 183, 237 N.E.2d 776, 781 (Ill.App.Ct. 1968). The Florida appellate cases dealing with the business judgment rule in a condominium setting apply a reasonableness standard. In Farrington v. Casa Solana Condominium Association, Inc., 517 So. 2d 70 (Fla. 3d DCA 1987), the board of directors, after hearing the opinions of engineers, architects and legal counsel, used its business judgment in determining that a special assessment was needed immediately for building repairs and sealing. The court held that it will not supplement its judgment for that of the board and that the business judgment rule will protect a corporation s board of directors business judgment as long as the board acted in a reasonable manner in passing the special assessment. See also, Cedar Cove Efficiency Condominium Association, Inc. v. Cedar Cove Properties Inc., 558 So. 2d 475 (Fla. 1st DCA 1990) (Decisions of the board protected as long as it acted in a reasonable manner) Based on the foregoing findings of fact and conclusions drawn based on applicable decisional law, the arbitrator hereby denies petitioners motion for temporary injunctive relief. Petitioners have not shown a clear legal right to the relief requested. Case law supports instead the position of the association that consistent with the board s duty to maintain and protect the common elements and residents, the association through its duly elected board has determined upon reflection and study to comply with the mandate of the fire marshal by upgrading the fire alarm system in the building. No vote of the owners is required. WHEREFORE, petitioners motion is hereby denied and the petition for arbitration is hereby dismissed. DONE AND ORDERED this 21 st day of May, 2003, at Tallahassee, Leon County, Florida. 11

12 Karl M. Scheuerman, 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 final order has been sent by U.S. Mail to the following persons on this 21 st day of May, 2003: Virgil Rizzo, Esquire P.O. Box Ft. Lauderdale, Florida Tamar Shendell, Esquire 3650 North Federal Highway Suite 202 Lighthouse Point, Florida Karl M. Scheuerman, Arbitrator Right to Appeal As provided by s , F.S., this final order may be appealed by filing a complaint 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. If this final order is not timely appealed, it will become binding on the parties and may be enforced in the courts. Attorney s Fees As provided by s , 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. 12