Florida appellate decision alters how the business judgment rule may be used when defending condo associations and their officers and directors.

In Florida, the business judgment rule cloaks associations as well as officers and directors of condominium and homeowners’ associations with protection from their decisions made in carrying out corporate business on behalf of the association. Florida courts must give deference to a condominium association’s decision if that decision is within the scope of the association’s authority and is reasonable—that is, not arbitrary, capricious or in bad faith. However, a recent Third District Court of Appeal decision has altered the way the business judgement rule may be used when defending associations and their officers and directors. 

The court’s decision in New Horizons Condominium Master Association clarifies that the business judgment rule need not be pled as an affirmative defense in order to preserve the protections provided under it. Specifically, in a dispute over assessments, the master association argued that their directors were afforded protection by the business judgment rule. However, the trial court granted summary judgment in favor of the sub-association and board member, in part, because the master association failed to plead the business judgment rule as an affirmative defense. 

On appeal, the court noted that there are no Florida decisions specifically stating that a party seeking to invoke the business judgment rule must raise it as an affirmative defense. In fact, the court determined that persuasive authority says the opposite. Florida chose not to define the business judgment rule as in affirmative defense and instead created a framework for the rule that modeled other jurisdictions. According to the Third DCA, this essentially means that the business judgment rule is “viewed as a historically accepted principle of managerial prerogative” and that the rule “applies presumptively by operation of law.”

The sub-association attempted to argue that the master association’s actions were ultra vires and not subject to the business judgment rule, but the Third DCA determined that ultra vires acts are performed without legal authority. Conversely, acts by a corporate within its realm of power are intra vires. 

Accordingly, both plaintiffs and defendants need to be aware of the strength of the business judgment rule in Florida homeowners’ and condo association cases as there is a strong presumption that it applies and that claimants/plaintiffs need to overcome the protections afforded by it in order for them to prevail in the case. As a practical matter, we still recommend asserting the “business judgment rule” as an affirmative defense in the initial responsive pleading. 
 

^{Case Law Alerts, 1st Quarter, April 2022 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2022 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}