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

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1 STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES AND MOBILE HOMES IN RE: PETITION FOR ARBITRATION-COOP JEANNE F. HELD, Petitioner, v. Case No CRANE-CREST APARTMENTS, INC., Respondent. / FINAL ORDER Pursuant to notice, the undersigned arbitrator of the Division of Florida Condominiums, Timeshares and Mobile Homes conducted a telephonic final hearing in this case on April 19, During the hearing, the parties presented the testimony of witnesses, entered documents into evidence and cross-examined witnesses. The parties were ordered to file post-hearing memoranda by May 17, Both parties have filed their post-hearing memoranda. This Final Order is entered after consideration of the complete record. Appearances For Petitioner: Arthur Vincent, Esq. 800 East Broward Boulevard Suite 607 Fort Lauderdale, FL For Respondent: Howard J. Perl, Esq. Becker & Poliakoff, P.A. 1 East Broward Boulevard Suite 1800 Fort Lauderdale, FL

2 Statement of the Issue The issue to be determined is whether the votes conducted at the Association s annual membership meeting held on February 17, 2015 complied with its governing documents and whether the Association properly amended its By-Laws pursuant to such voting. Findings of Fact 1. Petitioner, Jeanne F. Held, owns Unit #905 within Cranes Crest Apartments, Inc. (the Association). 2. Respondent, Cranes Crest Apartments, Inc., is a Co-Operative governed by Chapter 719, Florida Statutes. 3. The Association contains 106 voting interests. Therefore, a majority of the voting interests is 54 votes. 4. Article IX of the Association s Articles of Incorporation, states, in pertinent part: Amendment of By-Laws and Certificate of Incorporation Every amendment shall be approved by the Board of Directors, proposed by them to the owners of individual apartments and holders of Proprietary Leases, and approved at a meeting of said owners of individual apartments by a majority of all the apartment owners and holders of Proprietary Leases Article 12.1 of the Association s By-Laws, states, in pertinent part: Amendments to the By-Laws [T]hese By-Laws may be amended by majority vote of the Voting Interests of the Association, present and voting at the Annual Meeting of the members, or at a Special Meeting of the members properly called and noticed for that purpose. 6. Article 12.2 of the Association s By-Laws, states, in pertinent part: Amendments to the By-Laws Proposed amendments may be submitted by the Board or by petition of not less than 2

3 20% of the Voting Interest [sic] in the Association. Proposed amendments must be submitted in writing to the Secretary not less than forty (40) days prior to the date of the meeting at which such amendment will be considered. 7. Article 3.5(a) of the Association s By-Laws, states, in pertinent part: Notice Written notice of the annual meeting shall be distributed to all Unit Owners at least thirty (30) days prior to the date of the meeting by personal distribution or by regular mail, and shall be posted on the Cooperative Property at least fourteen (14) days prior to the date of the meeting. 8. Article 12.3 of the Association s By-Laws, states, in pertinent part: Amendments to the By-Laws The Secretary shall mail and/or deliver a copy of the proposed amendments to all Owners. This mailing and/or delivery may be included as a part of the notice of the meeting at which the amendment will be considered, and shall, in any event occur not less than fourteen (14) days prior to the meeting. 9. On February 17, 2015, the Association conducted an annual membership meeting, attended by 78 members, in person or by proxy, at which the membership voted on the following matters: 1. Waiver of statutory reserves 2. Waiver of statutory financial statements 3. Opt out of fire sprinkler retrofitting 4. Amend Article II, Section 2.5 of the By-Laws 5. Amend Article II, Section of the By-Laws 6. Amend Article III, Section of the By-Laws 7. Amend Article III, Section 3.5 of the By-Laws 8. Amend Article IV, Section of the By-Laws 9. Add Section 5.10 to Article V of the By-Laws 10. Amend Article VII, Section 7.5 of the By-Laws 11. Amend Article VII, Section of the By-Laws 12. Amend Article XI, Section of the By-Laws 13. Amend Article XI, Section of the By-Laws 10. The number of yes votes on each of the membership votes are as follows:: 1. Waiver of statutory reserves; Waiver of statutory financial statements; 53 3

4 3. Opt out of fire sprinkler retrofitting; Amend Article II, Section 2.5 of the By-Laws; Amend Article II, Section of the By-Laws; Amend Article III, Section of the By-Laws; Amend Article III, Section 3.5 of the By-Laws; Amend Article IV, Section of the By-Laws; Add Section 5.10 to Article V of the By-Laws; Amend Article VII, Section 7.5 of the By-Laws; Amend Article VII, Section of the By-Laws; Amend Article XI, Section of the By-Laws; Amend Article XI, Section of the By-Laws; The Association s Secretary received the proposed amendments 32 days in advance of the February 17, 2015 meeting. The Association submitted the proposed amendments to the membership with the Second Notice of Annual Meeting on January 16, 2015, 31 days prior to the annual membership meeting. 12. As a result of the votes taken at its annual membership meeting, the Association determined that all items voted on by the membership had passed. 13. Some confusion existed within the Association because, at the annual membership meeting, the Association initially took the position that an absolute majority of all the voting interests (54 votes) was required for each item voted on. It therefore found that any item without 54 yes votes had failed. However, the Association later changed its interpretation of its documents to the position that a majority voting at the annual membership meeting was all that was required for passage. Therefore, on February 23, 2015, the Association s board of directors voted to accept all results of the voting and to adopt all of the amendments as having been passed by the required majority vote. 14. On March 20, 2015, the Association recorded a notice that the membership had voted to opt out of fire sprinkler retrofitting and recorded all amendments to the By- 4

5 Laws voted on and ostensibly passed at the February 17, 2015 annual membership meeting. Conclusions of Law The undersigned has jurisdiction of the parties and this dispute pursuant to Section , Florida Statutes. The Association is a cooperative pursuant to Chapter 719, Florida Statutes. The issue to be determined is whether the votes conducted at the Association s annual membership meeting held on February 17, 2015 complied with its governing documents and whether the Association properly amended its By-Laws pursuant to such voting. Petitioner has alleged that the amendments and the votes taken on the other three issues (waiver of statutory reserves, waiver of statutory financial statements and opt out of fire sprinkler retrofitting) should be invalidated for numerous reasons as follows: (1) The proposed amendments were not submitted to the Association s Secretary at least 40 days in advance of the annual membership meeting; (2) The Board deliberately misled the membership so that it could get the votes it wanted without opposition; (3) Violation of the governing documents concerning the amendment process; (4) The amendment to Article II, Section is ambiguous, arbitrary and capricious and restricts the alienability of a unit; (5) The amendment to Article V, Section 5.10 is improper as it provides absolute immunity from personal responsibility for Directors, Officers and Committee members of the Association; and (6) The board failed to properly provide agendas relating to meetings at which various aspects of the amendments were discussed. 5

6 Non-Amendment Votes Before discussing the allegations concerning the amendments, it must be noted that the first items voted on, waiver of statutory reserves, waiver of statutory financial statements and opt out of fire sprinkler retrofitting are not amendments at all, but are merely votes that can be taken by an association pursuant to Chapter 719, Florida Statutes. As to waiver of statutory reserves, Section (1)(j)2., Florida Statutes, provides that reserves may be waived upon the vote of a majority of all voting interests voting in person or by limited proxy at a duly called meeting of the association. Thus, since 54 yes votes to waive statutory reserves were received at the annual membership meeting attended by 78 members in person or by proxy, the arbitrator concludes that the Association properly determined that waiver of statutory reserves was approved by the membership. Concerning the waiver of statutory financial statements, Section (4)(b), Florida Statutes, provides that a financial statement compiled, reviewed, or audited may be waived by a majority of the voting interests of the association present at a duly called meeting of the association. Accordingly, since 53 yes votes to waive statutory financial statements were received at the annual membership meeting attended by 78 members in person or by proxy, the arbitrator concludes that the Association properly determined that waiver of statutory financial statements was approved by the membership. Finally, regarding the vote to opt out of fire sprinkler retrofitting, Section (5)(a), Florida Statutes, provides that a majority of all voting interests in the affected cooperative at a duly called membership meeting may vote to forego such retrofitting. Therefore, since 74 yes votes to opt out of fire sprinkler retrofitting were 6

7 received at the annual membership meeting and there are 106 voting interests, the arbitrator concludes that the Association properly determined that opting out of fire sprinkler retrofitting was approved by the membership. Proposed Amendments Not Submitted to the Secretary 40 days in Advance The proposed amendments were not submitted to the Association s Secretary at least 40 days in advance of the annual membership meeting. Petitioner argues that this circumstance invalidates the amendments. Petitioner bases this contention on Article 12.2 of the By-Laws, which provides, Proposed amendments must be submitted in writing to the Secretary not less than forty (40) days prior to the date of the meeting at which such amendment will be considered. In the case at hand, the amendments were submitted to the Secretary only 32 days prior to the annual membership meeting. Clearly, the requirement to provide the proposed amendments to the Secretary at least 40 days in advance is so that the Secretary has adequate time to prepare the meeting notices that must be sent to the membership with the proposed amendments. The 40-day requirement applies to the Secretary, not the membership. In the instant case, the membership is only entitled to 30 days advance notice of the annual meeting per Article 3.5(a) of the Association s By-Laws. Furthermore, Article 12.3 of the Association s By-Laws only requires the Secretary to mail and/or deliver a copy of proposed amendments to all Owners not less than fourteen (14) days prior to the meeting. Therefore, for member meetings other than an annual meeting, only 14 days notice, with the proposed By-Laws attached, is sufficient to comply with the Association s governing documents. However, because the amendments were being considered at the annual meeting, 30 days notice was required. The evidence in this case established that 7

8 the members were sent the proposed amendments 31 days in advance of the February 17, 2015 annual membership meeting. The arbitrator concludes that this amount of time was sufficient to comply with the Association s governing documents. The fact that the Secretary only received the amendments 32 days in advance of the meeting is irrelevant because this did not affect the time requirement for notice to the membership. The only person who arguably had a claim as being affected by the 32 day notice rather than the 40 day notice is the Association s Secretary. The evidence at the final hearing did not establish that the Secretary raised any concern about the shortened notice time. In fact, the evidence showed that the Secretary merely sent out the proposed amendments to the membership as required. Moreover, the evidence demonstrated that the Secretary voted to approve the amendments without objection at a subsequent board meeting. Therefore, the arbitrator determines that the amendments should not be invalidated as a result of the fact that they were given to the Secretary less than 40 days in advance of the meeting. The Board Deliberately Misled the Membership The testimony at the final hearing established that some confusion existed within the Association because, at the annual membership meeting and prior regular board meetings, the Association initially took the position that an absolute majority of all the voting interests (54 votes) was required for each item voted on. However, the Association later changed its interpretation of its documents to the position that a majority voting at the annual membership meeting was all that was required for passage. It is the Association s position that the board merely corrected its own error subsequent to the annual meeting of the membership. The evidence at the final hearing did not show that 8

9 the board of directors of the Association deliberately misled the members. All amendments were in writing and each owner could choose to vote to approve or disapprove any particular amendment, and this is what the owners did for the ten amendments at issue. Whether an owner thought that less or more votes were required to pass an amendment, based on what had been discussed at board meetings, had no legal effect on whether or not the amendment passed. It was the owners responsibility to make an informed decision about the amendments. If an owner felt that he or she did not have sufficient information to make an informed decision about the amendments, the owner could have asked for further information, voted against the amendments, or not voted at all. See Greenlee v. Oceanside Terrace Condominium Association, Inc., Arb. Case No , Final Order (March 26, 1997). Accordingly, the arbitrator concludes that the board did not deliberately mislead the owners and any confusion on the part of the board as to the requisite number of votes to pass an amendment is not a sufficient basis to void otherwise validly approved amendments. Violation of the Governing Documents Concerning the Amendment Process Petitioner argues that the board failed to hold a duly noticed meeting for the membership to consider the proposed amendments prior to the annual meeting. Petitioner further alleges that the Association s counsel prepared the amendments without input from either the Association s board of directors or the membership. Next, Petitioner argues that the board failed to approve the proposed amendments prior to sending them out to the membership for a vote. Finally, Petitioner contends that the 9

10 Association erred by not applying the By-Law amendment passage threshold contained within the Articles of Incorporation. As to whether the board failed to hold a duly noticed meeting for the membership to consider the proposed amendments prior to the annual meeting, Petitioner has been unable to point to any authority in either the governing documents or the statutes requiring such a meeting. The arbitrator concludes that the Association complied with its governing documents by sending the notice and text of the proposed amendments to the membership timely and conducting a vote on those amendments. The fact that the Association s custom and tradition may have been to hold a meeting where the membership discussed each amendment in detail before the amendment package was sent out, as was testified to by a witness for Petitioner, is immaterial because this procedure is not a required part of the Association s amendment process. Similarly, Petitioner did not show that it would violate the governing documents or the statutes for the Association s counsel to have prepared the amendments without input from either the Association s board of directors or the membership. First, Petitioner did not prove that the board had no input into the amendments. Second, it is a common practice in community associations for attorneys to draft amendments, as board members and the membership are generally lay persons untrained in drafting legal provisions. The members could have voted against the amendments if they felt they were not given enough input. Concerning the argument that the board failed to approve the proposed amendments prior to sending them out to the membership for a vote, Article IX of the Association s Articles of Incorporation, states, in pertinent part: 10

11 Amendment of By-Laws and Certificate of Incorporation Every amendment shall be approved by the Board of Directors, proposed by them to the owners of individual apartments and holders of Proprietary Leases, and approved at a meeting of said owners of individual apartments by a majority of all the apartment owners and holders of Proprietary Leases... Petitioner seems to be advocating that Article IX is a step-by-step procedure, and if the board gets the steps out of order, all amendments fail. The arbitrator does not concur. The evidence showed that the board, on February 23, 2015 (6 days after the membership meeting), voted to adopt all of the amendments as having been passed by the required majority vote. Thus, the board did approve the amendments as required by Article IX. Therefore, Petitioner s argument as to this issue fails. Finally, with respect to Petitioner s contention that the Association erred by not applying the By-Law amendment passage threshold contained within the Articles of Incorporation, the arbitrator concludes that Petitioner s legal position is well-taken concerning two amendments. These are: Amendment 10 which amended Article VII, Section 7.5 of the By-Laws, as it only received 53 votes, and Amendment 13 which amended Article XI, Section of the By-Laws, as it only received 50 votes. Article IX of the Association s Articles of Incorporation requires approval of a By- Laws amendment, by a majority of all the apartment owners and holders of Proprietary Leases, in other words, an absolute majority of all voting interests. In the case under consideration, an absolute majority of all voting interests equaled 54 votes in favor of an amendment. To the contrary, Article 12.1 of the Association s By-Laws requires approval of an amendment to the By-Laws only, by majority vote of the Voting Interests of the Association, present and voting at the Annual Meeting of the members, in other words, a 11

12 majority of the votes received, not all voting interests. This lesser number is the standard the Association applied in its determination that all amendments passed. However, Section , Florida Statutes, provides, The bylaws may contain any provision for the regulation and management of the affairs of the corporation not inconsistent with law or the articles of incorporation. An association s articles of incorporation control over its by-laws. Potts v. Shell Island Beach Club Association, Inc., Arb. Case No , Summary Final Order (September 2, 2009). Therefore, the Association should have applied the absolute majority of all voting interests standard to determine whether an amendment passed. Applying this correct standard, the arbitrator concludes that Amendment 10 and Amendment 13 did not pass as these amendments did not receive 54 yes votes. All of the other amendments received more than 54 votes, thereby receiving sufficient votes to pass. 1 Amendment 5, Amending Article II, Section Petitioner argues that Amendment 5 is ambiguous, arbitrary and capricious and restricts the alienability of a unit. Furthermore, Petitioner urges the arbitrator to find Amendment 5 to be unconstitutional. The text of Amendment 5 is as follows: 1 As noted above, even though the waiver of statutory financial statements only received 53 votes, it passed because it is not an amendment and Article IX is inapplicable. Section (4)(b), Florida Statutes, only requires a majority of the votes received, not all voting interests. This was obtained. 12

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14 First, the arbitrator lacks jurisdiction to address constitutional issues. See Hamptons at Tampa Condominium Association, Inc. v. Unit Owners Voting for Recall, Arb. Consolidated Case Nos and , Summary Final Order (May 19, 2015); Lessne v. Family Townhouses of the Lakes of Emerald Hills, Inc., Arb. Case No , Pre-Hearing Order (March 2, 1993). Second, neither the evidence at the final hearing nor the plain language of Amendment 5 shows it to be ambiguous, arbitrary and capricious. The amendment is a common provision found within many community association governing documents. Petitioner has failed to demonstrate that Amendment 5 should be invalidated on the basis of being ambiguous, arbitrary and capricious. Third, Amendment 5 certainly restricts the alienability of a unit, but that is what a majority of the members of the Association voted for. There are many reasons why the members of the Association would not want a unit to be sold or subleased to, for 14

15 example, a convicted felon or someone who has a history of disruptive behavior and disregard for the rights and property of others. The arbitrator will not substitute his judgment for that of the majority of the members of the Association. Furthermore, "increased controls and limitations upon the rights of unit owners to transfer their property are necessary concomitants of condominium living." Aquarian Foundation, Inc. v. Sholom House, Inc., 448 So. 2d 1166, 1167 (Fla. 3d DCA 1984). 2 Moreover, Section (4)(a), Florida Statutes, provides, the documents may be amended as to all matters except those described in subsection (1). The items in subsection (1) are not applicable here. The Association s governing documents contain provisions allowing the documents to be amended. Therefore, Petitioner was on notice when she purchased her unit that the terms concerning her ownership and alienation of the unit were subject to change through the amendment process and she would be bound by properly adopted amendments. See Woodside Village Condominium Association v. McClernan, 806 So. 2d 452, 461 (Fla. 2002). 3 Accordingly, the arbitrator declines to declare Amendment 5 to be unenforceable. Amendment 9, Adding Section 5.10 to Article V of the By-Laws Petitioner argues that Amendment 9, provides to the Directors, Officers, or Committee Members of the Association an absolute immunity from personal responsibility. Petitioner further contends about Amendment 9, The overbroad approach and breadth of the amendment requires first, deliberate review by the membership, and second a modification to limit the liability of the Association 2 Although Aquarian Foundation involves a condominium association, the legal principles are the same for a cooperative association. 15

16 membership. Petitioner also states that, The proposed amendment is irrelevant to the original By-Law. The text of Amendment 5 is as follows: 3 It does not appear to the arbitrator, nor does Petitioner argue, that the Legislature has required the owners of cooperative units to consent to an amendment limiting their right to rent their units as it did for condominium unit owners in response to Woodside by enacting Section (13), Florida Statutes. 16

17 There is no requirement in the Association documents or the statutes that supports any of the arguments Petitioner advances against Amendment 9. Furthermore, Petitioner offered no evidence at the final hearing in support of these legal theories. Officer and director indemnification provisions are common in community association documents and the membership could have voted against the amendment if it did not want to provide the indemnification called for in Amendment 9. Accordingly, the arbitrator declines to declare Amendment 9 to be unenforceable. 17

18 Failure to Properly Provide Agendas for Meetings Discussing Amendments Petitioner argues that the board failed to properly provide agendas relating to meetings at which various aspects of the amendments were discussed. However, there is no requirement in the Association documents or the statutes that requires the board to hold meetings to discuss proposed amendments, other than the meeting at which the proposed amendments will be voted on. Petitioner did not prove at the final hearing that such advance meetings were required which would necessitate the items appearing on the agendas. The Second Notice of Annual Meeting contained an agenda which notified the members that the February 17, 2015 annual membership meeting would include a vote to approve the proposed amendments and attached the proposed amendments. Thus, the arbitrator concludes that the Association provided adequate and proper notice in accordance with the Association s governing documents and the statutes of the meeting at which the proposed amendments would be voted on by the membership. Petitioner s argument concerning lack of agendas fails. Based upon the foregoing, it is ORDERED: 1. Within thirty (30) days of the date this Order, the Association shall record a notice in the official records of Broward County, Florida correcting the Certificate of Amendment it recorded on March 20, The notice of correction shall provide that Amendment 10, purportedly amending Article VII, Section 7.5 of the By-Laws and Amendment 13, purportedly amending Article XI, Section of the By-Laws were not approved by the membership as incorrectly stated in the Certificate of Amendment. Amendments 10 and 13 shall be deleted from the By-Laws. All of the other amendments stand. 18

19 Florida. 2. All pending motions are denied as moot. DONE AND ORDERED this 5 th day of August, 2016, at Tallahassee, Leon County, David R. Slaton, Arbitrator Department of Business and Professional Regulation Arbitration Section 2601 Blair Stone Road Tallahassee, Florida Telephone (850) Facsimile (850) Right to Trial De Novo A party may appeal this decision by filing a complaint for trial de novo in accordance with section , Florida Statutes. Attorney s Fees As provided by section , Florida Statutes, the prevailing party in this proceeding is entitled to have the other party pay reasonable costs and attorney s fees. Any such request must be filed in accordance with Rule 61B , Florida Administrative Code. 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 5 th day of August, 2016: Arthur Vincent, Esq. 800 East Broward Boulevard Suite 607 Fort Lauderdale, FL Attorney for Petitioner Howard J. Perl, Esq. Becker & Poliakoff, P.A. 1 East Broward Boulevard Suite 1800 Fort Lauderdale, FL Attorney for Respondent David R. Slaton, Arbitrator 19