Failing To Maintain And Properly Collect Assessments Is A Breach Of Fiduciary Duties

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Facts

Plaintiffs were two owners (Maples and Brown) at Compass Harbor Village Condominium Association in Maine (the “Association”) who had purchased their respective units sometime in 2007. The Declarant was an LLC that held more than 50% of the votes (15 of the 24 units) and therefore controlled the board. For many years the Association common areas were not property maintained in many ways. In addition, the Association failed to hold meetings, take votes on Association matters, maintain banking or other records and refused to provide financial information to the owners. The Declarant’s position was that “because it holds a majority of the voting power in the Association and therefore any dispute between it and any of the unit owners would ultimately be decided in its favor.” Plaintiffs claimed to have lost about $53,000 in value in each of their units because of the actions of the Declarant.

Trial Court

  1. Bylaws and Declaration are contracts between the Association and the unit owners, and the Association breached those contracts;
  2. The Declarant, “violated its fiduciary duties” to the owners;
  3. Association violated state’s Unfair Trade Practices Act (“UTPA”), which resulted in the award of attorney fees to the owners;
  4. Awarded $134,900 to Maples and $106,801 to Brown for their various losses;
  5. Ordered specific performance by the Association to:
    1. Abide by its contractual and fiduciary duties in the future; and
    2. “[P]romptly come into substantial compliance with all of the provisions of the Declaration, Bylaws” and the law.

Declarant appealed.

Appeals Court

  1. There was no violation of the UTPA because the acts identified “concern only the internal governance of the Association and therefore did not occur in the conduct of trade or commerce.”
  2. Because there was no UTPA violation there was no right to an award of attorney fees;
  3. The award of damages (more than $240,000) for breach of contract and breach of fiduciary duty are supported by the evidence and are not affected by the UTPA claim;
  4. Because the specific performance ordered by the trial court would result in “ongoing judicial review,” that portion of the award is also vacated.

LESSONS

  1. Declarants can’t avoid their fiduciary duties by controlling the Board;
  2. Even though the Association won most of its arguments on appeal, the one it lost cost it $240,000, plus all the attorney fees it had paid its attorney. In other words, A LOT.
  3. Properly assessing and proper budgeting could have avoided all the issues raised in this case.

Brown v. Compass Harbor Village Condominium Association, —A.3d—, 2020 ME 44 (2020 WL 1808375)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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