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 HOA ELECTION DUDLEY BENESCH, Petitioner, v. Case No LOFTON POINTE HOMEOWNERS ASSOCIATION, INC., Respondent. / FINAL ORDER OF DISMISSAL Statement of the Issue Whether the election held by parcel owners/members of a homeowners association, acting independently of the Association s board of directors, and the vote to remove three of the four members of the board of directors without following the procedures for recall set forth in Section , Florida Statutes, and Rules 61B-80 and 61B-81, Florida Administrative Code, were valid. Relevant Factual Allegations On June 9, 2014, Petitioner Dudley Benesch filed a Mandatory Binding Arbitration Form Petition Election Dispute, naming Lofton Pointe Homeowners Association, Inc. ( Association ) as Respondent. Petitioner claims that the Association s failure to notice and hold an election of Directors at the annual meeting held on March 3, 2014 violated the Association s governing documents; that an impromptu and unnoticed election held on the same date by parcel owners acting independently of the board was valid; and that a vote on April 7, 2014 by parcel owners to remove board Page 1 of 9

2 members was valid. Additionally, Petitioner asserts that three of the four board members breached their fiduciary duties by not holding an election at the March 3, 2014 annual meeting. Petitioner is member of the Association s Board of Directors and holds the office of Treasurer. According to the petition and attachments, the March 3, 2014 annual meeting was noticed only as an annual meeting, despite Petitioner s disagreement with the other three members of the board over whether the meeting should also include an election. The meeting was not noticed as an election pursuant to the procedures set forth in Section (9)(a), Florida Statutes, and the Association s governing documents. Additionally, the agenda for the meeting did not include an election. Petitioner alleges that at the annual meeting, he made a motion to hold an impromptu election, which was seconded by an unidentified parcel owner, but the other Board members refused to put the matter to a vote. Robert s Rules of Order were then disregarded and/or suspended, and Petitioner stepped in as acting chair for the remainder of the meeting in lieu of Lindsay Lauren, the board president. Pre-prepared ballots were distributed to those in attendance by an un-named individual, and the members were asked to vote for two new directors. According to the petition and attachments, after the vote was held, the two purportedly elected new directors, David Peat and Kathy Green were seated, and the annual meeting was adjourned until April 7, At the reconvened annual meeting on April 7, 2014, David Peat made a motion for a vote to remove three of the Directors: Lindsay Lauren, Kathleen Waldrop, and Todd McCracken. Petitioner acted as chair of the April 7, 2014 meeting, David Peat presented Petitioner with a written agreement to Page 2 of 9

3 remove the three directors from office, and made motion to have the membership vote to certify the document. A copy of the alleged written agreement was not filed with the petition for arbitration. There is no indication in the petition or attachments that the meeting of April 7, 2014 was noticed as a homeowners meeting to recall Directors pursuant to Section (10)(c), Florida Statutes, or that at least 10 percent of the voting interests had called for a recall meeting. The petition alleges that the Association has refused to recognize the un-noticed election of March 3, 2014, and the meeting at which a vote was taken to remove three directors on April 7, 2014, and that directors, Lindsay Lauren, Kathleen Waldrop, and Todd McCracken refuse to relinquish their seats on the Board. The petition alleges that directors Lauren, Waldrop, and McCracken have breached their fiduciary duty by not holding an election at the March 3, 2014 annual meeting and by incurring legal expenses involved in bringing this petition for arbitration. As relief, Petitioner seeks an order declaring that the Association s failure to notice and hold an election of directors at the annual meeting held on March 3, 2014 violated the Association s governing documents; that the un-noticed election organized and held by members other than the board of directors at the March 3, 2014 annual meeting was valid; that directors Lauren, Waldrop, and McCracken must immediately turn over all Association property to Petitioner and the two individuals who were purportedly elected at the annual meeting, David Peat and Kathy Green; that directors Lauren, Waldrop, and McCracken are no longer directors of Lofton Pointe Homeowners Association, Inc.; that directors Lauren, Waldrop, and McCracken have breached their fiduciary duty by failing to hold an election of directors at the annual meeting on March Page 3 of 9

4 3, 2014; and that directors Lauren, Waldrop, and McCracken must reimburse Petitioner and the Association for their costs and attorney s fees incurred as a result of the breach of fiduciary duty. Conclusions of Law Un-Noticed Election at the March 3, 2014 Annual Meeting According to the petition and attachments, the Association did not notice an election at the March 3, 2014 annual meeting. Section (9)(a), Florida Statutes, requires that elections of directors be conducted in accordance with the procedures set forth in the governing documents of the Association. Section 4.3 of the Association s bylaws requires that written notice of all meetings of members shall state the purpose for which the meeting is called and shall be given to each member not less than fourteen nor more than 60 days prior to the meeting, and must be mailed or delivered personally to every board member. Petitioner admits that the Meeting of March 3, 2014 was not noticed as an election. Therefore, pursuant to Section (9)(a), Florida Statutes, the impromptu election initiated by disgruntled parcel owners on March 3, 2014, was invalid. Furthermore, even if it were proven that the Association had violated its governing documents by failing to notice and hold an election at the annual meeting, the appropriate remedy would be to order the Association to properly notice and conduct an election. The arbitrator cannot validate an election that, according to the petition, was not conducted in accordance with Section (9), Florida Statutes. The correct method by which to challenge the board s decision not to hold an election at the annual meeting would be to file a petition for arbitration seeking to compel the board to hold an Page 4 of 9

5 election, after first giving the board proper pre-arbitration notice and a reasonable opportunity to comply not for the dissenting members to stage a coup, seize control of the annual meeting, and hold an un-noticed do it yourself election. 1 & 2 Breach of Fiduciary Duty Pursuant to Sections (1) and (1), Florida Statutes, the arbitrator has jurisdiction to hear and decide only certain controversies and disputes. Section (1) provides as follows: (1) DEFINITIONS.--As used in this section, the term dispute means 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 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 a governing body, when required by this chapter or an 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. "Dispute" does not include any disagreement that primarily involves: title to any unit or common element; the interpretation or enforcement of any warranty; the levy of a fee or assessment, or the collection of an assessment levied against a party; the eviction or other removal of a tenant from a unit; alleged breaches of fiduciary duty by one or more directors; or claims for damages to a unit based upon 1 See Moliterno v. South Palm Place Condo. Ass n, Inc., Arb. Case No , Final Order (August 21, 2014) quoting Whilden v. Parkway Grove Condo. Ass'n, Inc., Arb. Case No , Summary Final Order (November 13, 2009)(Property manager scheduled and noticed election without board approval. Election was void because the board is the entity responsible for the scheduling of association meetings and elections.) 2 Although the rules and case law applicable to condominiums do not control homeowners associations, they do provide persuasive authority to evaluate the fairness of homeowner association elections. Parker v. East Linden Homeowners Ass n, Inc., Arb. Case No , Summary Final Order (October 1, 2007). Page 5 of 9

6 (Emphasis supplied). the alleged failure of the association to maintain the common elements or condominium property. The statute does not give the arbitrator jurisdiction over alleged breaches of fiduciary duty by one or more directors. See also, Bers v Gulf of Mexico Drive Apts., A Condominium, Inc., and Arb. Case No , Final Order of Dismissal (May 1, 2013). Section (1), Florida Statutes, further limits the arbitrator s jurisdiction to election and recall disputes, where homeowners associations are concerned. Removal of Directors Section (10), Florida Statutes, and Rules 61B ,.002, and.003, Florida Administrative Code, specify the procedures for removal of Directors, either by written recall agreement or by a meeting for recall. Section (10(c), Florida Statutes, and Rule 61B , Florida Administrative Code, require that a meeting to recall directors must be called by at least 10 percent of the voting interests, must be noticed as required for a meeting of the members, and the notice must state the purpose of the meeting. The notice must be delivered to all parcel owners, and must be delivered to the board members at least ten days prior to the meeting. If a majority of the voting interests vote in favor of recall at the meeting, the existing board members, not including their pre-selected replacements, are given a time period of five business days in which to notice and hold a board meeting at which to determine whether to certify the recall. The board then has an additional time period of five business days to file a petition for recall arbitration if the board has determined not to certify the recall. If a petition for recall arbitration is filed by the board, the recall is not Page 6 of 9

7 certified unless and until the arbitrator issues an order certifying it. The procedures for removal of directors set forth in statute and rule control, to the extent that any inconsistent procedures may be contained in the governing documents. Based upon the four corners of the petition and its attachments, the procedures in the statute and rules for removal of directors by meeting for recall were not followed in this case. The meeting of April 7, 2014 was not noticed as a meeting to recall members of the board of directors. Replacement board members were seated on the board on March 3, 2014, prior to the meeting for recall, and one of the replacements, David Peat, moved for a vote to remove the three directors at the April 7, 2014 meeting. At the same meeting, the David Peat presented Petitioner with what was stated to be a written agreement to remove directors Lauren, Waldrop, and McCracken, and called for a vote of the membership to certify the document, rather than allowing the board the statutorily required time periods to determine whether to certify the recall or file a petition for recall arbitration. Pursuant to Section (10)(c), Florida Statutes, and Rule 61B , Florida Administrative Code, the vote taken at the meeting on April 7, 2014, to remove Lindsay Lauren, Kathleen Waldrop, and Todd McCracken from the board of directors was invalid. Section (10(c), Florida Statutes, and Rule 61B , Florida Administrative Code, require that a written agreement for recall contain specific information and be served upon the board. The existing board members, not including their pre-selected replacements, are given a five business day period in which to notice and hold a board meeting at which to determine whether to certify the recall, and an Page 7 of 9

8 additional five business day period to file a petition for recall arbitration if the board has determined not to certify the recall. The factual allegations in the petition make clear that after the document claimed to have been a written agreement to remove directors 3 was presented to Petitioner at the meeting of April 7, 2014, the board was not allowed the statutorily required time to determine whether to certify the recall or file a petition for recall arbitration. Rather, one of the replacement individuals who was purportedly elected and seated on the board at the March 3, 2014 meeting, presented the document to Petitioner and immediately called for a vote of the membership to certify the document. Therefore, pursuant to Section (10)(c), Florida Statutes, and Rule 61B , Florida Administrative Code, the attempt to remove Lindsay Lauren, Kathleen Waldrop, and Todd McCracken from the board of directors by written agreement at the meeting on April 7, 2014 was invalid. Based upon the foregoing, it is ORDERED: 1. The petition for arbitration is DISMISSED for failure to state a claim on which relief can be granted as to the meeting and un-noticed election of March 3, 2014; for lack of jurisdiction as to the claims involving breach of fiduciary duty; and for failure to state a cognizable claim as to Lindsay Lauren s, Kathleen Waldrop s, and Todd McCracken s refusal to step down as Directors in response to the meetings of March 3, 2014, and April 7, Arbitration Case No is hereby closed. 3 A copy of the document was not filed with the petition. Page 8 of 9

9 Florida. DONE AND ORDERED this 7 th day of July 2014, at Tallahassee, Leon County, Leslie O. Anderson-Adams, Arbitrator Department of Business and Professional Regulation Arbitration Section 1940 North Monroe Street Tallahassee, Florida Telephone (850) Facsimile (850) 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 7 th day of July, 2014: Joshua K. Martin, Esq Gateway Blvd., Suite 104 Fernandina Beach, FL Attorney for Petitioner Michal Fox Orr, Esq. 50 N. Laura St., Suite 1675 Jacksonville, FL Attorney for Association Lindsay Lauren Piedmont Circle Fernandina Beach, FL Director Kathleen Waldrop Ridgewood Circle Fernandina Beach, FL Director Todd McCracken Waters Court Fernandina Beach, FL Director Leslie O. Anderson-Adams, Arbitrator Page 9 of 9