Court Opinion

ID: 9375991
Source: CourtListenerOpinion
Date Created: 2023-03-01 16:03:07.474065+00
Date Added: 2024-06-11T17:17:03.483513
License: Public Domain

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
                             FOURTH DISTRICT

         TARA EZER, on a derivative basis as a member of
    HOLLYWOOD STATION CONDOMINIUM ASSOCIATION, INC.,
               a Florida not-for-profit corporation,
                            Appellant,

                                     v.

     JACQUELINE HOLDACK, DAN TUBRIDY, VICTOR ROCHA,
  PATRICIA GUTIERREZ, MARIA PAULA DIAZ, FRANK COLON, and
      HOLLYWOOD STATION CONDOMINIUM ASSOCIATION,
               a Florida not-for-profit corporation,
                            Appellees.

                             No. 4D21-3528

                             [March 1, 2023]

   Appeal from the Circuit Court for the Seventeenth Judicial Circuit,
Broward County; Jack B. Tuter, Judge; L.T. Case No. CACE20-16861(07).

   Gregory R. Elder and Beverly D. Eisenstadt of the Law Offices of
Gregory R. Elder, PLLC, Boca Raton, for appellant.

   Therese A. Savona of Cole, Scott & Kissane, P.A., Orlando, for appellees.

WARNER, J.

   Appellant Tara Ezer appeals the final dismissal with prejudice of her
derivative lawsuit against Hollywood Station Condominium Association
(the “Association”), and six of the board of directors. Appellant claimed
that the directors had violated the Association by-laws by taking out
unapproved loans to fund the Association’s improvements. The court
dismissed the action pursuant to section 617.07401(3)(b), Florida Statutes
(2020), because an independent investigation determined that pursuit of
the derivative claim was not in the Association’s best interests. While
appellant challenges the independence of the committee appointed to
investigate, the trial court concluded that the committee was appropriately
appointed, independent, and conducted a good faith investigation. We
agree and affirm.
   Appellant’s derivative claims accuse the director defendants of violating
three of the Association’s bylaws. She alleged that, at the director
defendants’ direction, the Association made material alterations to the
common elements; took out an unapproved loan to fund the improvements
and alterations; executed an unapproved contract to make the
improvements and alterations; and, misrepresented how the Association
would pay for the project. Appellant requested equitable relief by way of a
declaratory judgment, an injunction, and appointment of a receiver. On
the association’s behalf, she also sought damages from defendant directors
for breach of fiduciary duties, civil conspiracy and aiding and abetting
fraud.

    In September 2020, appellant served the association board of directors
with a written letter summarizing her claims and demanding that the
board, on the Association’s behalf, sue the directors. Although section
617.07401(2) provides that a member must give a board of directors ninety
days’ notice prior to the filing of a derivative claim, appellant filed her first
complaint in October.         She claimed the Association would suffer
irreparable damage without action within ninety days.                    See §
617.07401(2), Fla. Stat. (2020) (stating that an association member may
not bring a derivative complaint unless a demand made to obtain action
by the board was refused or ignored for ninety days, “unless irreparable
injury to the corporation would result by waiting for the expiration of the
90-day period”).

   In accordance with section 617.07401(3), the Association commenced
an investigation into the allegations of the complaint. That section
provides:

      (3) The court may dismiss a derivative proceeding if, on
      motion by the corporation, the court finds that one of the
      groups specified in paragraphs (a)-(c) has made a good faith
      determination after conducting a reasonable investigation
      upon which its conclusions are based that the maintenance
      of the derivative suit is not in the best interests of the
      corporation. The corporation has the burden of proving the
      independence and good faith of the group making the
      determination and the reasonableness of the investigation.
      The determination shall be made by:

          ....

      (b) A majority vote of a committee consisting of two or more
      independent directors appointed by a majority vote of

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      independent directors present at a meeting of the board of
      directors, whether or not such independent directors
      constitute a quorum[.]

§ 617.07401(3)(b).

    In December, the majority of Association’s board members who were
not named defendants in the complaint voted to appoint two directors, also
not defendants, to the committee pursuant to section 617.07401(3)(b).
Both committee members filed sworn declarations with the trial court as
to their noninvolvement in any of the conduct described in the complaint.

   The investigation continued, and the committee issued a report which
was circulated to all Association members together with a notice of a
special meeting to be held telephonically. The notice informed the
Association members that the meeting’s purpose was to vote on whether
maintaining appellant’s derivative lawsuit was in the Association’s best
interest. At that meeting, the members overwhelmingly approved the
report which concluded that continuing the derivative lawsuit was not in
the Association’s best interest.

   In the meantime, appellant sought to amend her complaint to add the
two directors appointed to the investigation committee. In the proposed
amendment, she alleged that they were on the board when some of the
loan draws which she contested were made. The trial court granted
appellant’s motion to amend her complaint, but provided that service on
the two directors would be abated pending resolution of any challenges to
the newly amended complaint.

   The Association filed a motion to dismiss the derivative action, arguing
that the committee was independent and that its report was reasonably
investigated and done in good faith. The Association also argued that
dismissal was warranted due to an overwhelming majority vote to abandon
appellant’s lawsuit. Appellant filed a response in opposition, contending
that the committee was not independent, and its report was neither
reasonable nor made in good faith.

   The trial court dismissed the derivative action with prejudice. The court
determined it was not required to evaluate whether the committee’s
recommendation was reasonable, but instead whether the committee was
independent, acted in good faith, and conducted a reasonable
investigation.

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   The court found the committee was appropriately appointed pursuant
to section 617.07401(3)(b). The committee was at all times independent.
The committee members were not defendants and had not been served as
defendants until after appellant amended her complaint. The court further
found that the committee’s investigation was reasonable, and that the
report’s in-depth event timeline was specific and narrowly tailored to
appellant’s allegations, demonstrating that the committee had carefully
reviewed the relevant documents. The court also noted that the majority
of the association members voted in line with the committee report’s
recommendation that continuation of the derivative lawsuit was not in the
Association’s best interest. Based upon all of the circumstances, the court
found the decision to abandon appellant’s derivative action was made in
good faith. Appellant then filed this appeal.

   A mixed standard of review applies to the court’s determination to
dismiss a derivative lawsuit against a corporation. “‘[M]ixed questions of
law and fact . . . require us to employ a mixed standard of review: we defer
to the trial court’s factual findings (to the extent they are supported by
competent, substantial evidence), but we review the trial court’s legal
conclusions de novo.’” Batur v. Signature Props. of N.W. Fla., Inc., 903 So.
2d 985, 995 (Fla. 1st DCA 2005) (alteration in original) (quoting Dillbeck v.
State, 882 So. 2d 969, 972–73 (Fla. 2004)).

   A trial court “may dismiss a derivative proceeding” if the court finds “[a]
majority vote of a committee consisting of two or more independent
directors appointed by a majority vote of independent directors present at
a meeting of the board of directors” have “made a good faith determination
after conducting a reasonable investigation upon which its conclusions are
based” that to maintain the derivative suit is not in the corporation’s best
interests. § 617.07401(3)(b), Fla. Stat. (2020).

   The corporation has the burden of proving the committee is
independent, acted in good faith, and has a reasonable and objective basis
for its report. § 617.07401(3), Fla. Stat. (2020); see also De Moya v.
Fernandez, 559 So. 2d 644, 645 (Fla. 4th DCA 1990) (“[A] trial court must
make a determination that the committee recommending dismissal is
independent, acting in good faith and has a reasonable and objective basis
for its report.”) (citing Zapata Corp. v. Maldonado, 430 A.2d 779 (Del.
1981)). However, section 617.07401 does not define what makes a director
“independent,” and neither does the general chapter’s “definitions” statute.

   Where Florida law has not spoken as to a corporate term or statute,
courts often look to Delaware law. See Williams v. Stanford, 977 So. 2d
722, 727 (Fla. 1st DCA 2008) (“To date, no Florida court has had occasion

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to interpret the governing provisions of section 607.1302 in its 2003 form.
As is often true, however, Delaware case law provides guidance to our
construction of the statute[.]”); Int’l Ins. Co. v. Johns, 874 F.2d 1447, 1459
n.22 (11th Cir. 1989) (“We rely with confidence upon Delaware law to
construe Florida corporate law. The Florida courts have relied upon
Delaware corporate law to establish their own corporate doctrines[.]”);
Boettcher v. IMC Mortg. Co., 871 So. 2d 1047, 1052 n.5 (Fla. 2d DCA 2004)
(observing that Florida courts routinely consult Delaware case law when
construing Florida statutory law governing corporations).

   In determining the independence of an investigative committee which
recommended dismissal of a shareholder derivative suit, the Delaware
supreme court has stated:

      [Director’s] presence on the Board does not establish a lack of
      independence on the part of the Committee. The mere fact
      that a director was on the Board at the time of the acts alleged
      in the complaint does not make that director interested or
      dependent so as to infringe on his ability to exercise his
      independent business judgment of whether to proceed with
      the litigation. Even a director’s approval of the transaction in
      question does not establish a lack of independence.

Kaplan v. Wyatt, 499 A.2d 1184, 1189 (Del. 1985) (emphasis added)
(citations omitted).

    Applying Kaplan, the trial court’s determination that the committee was
composed of independent board members is supported by competent
substantial evidence. The two members were not on the board when the
transactions in question in the original complaint were approved. They
also filed affidavits to attest to their lack of involvement in the transactions
and their independence. Moreover, appellant’s amended complaint only
alleges their limited involvement. One of the two members signed off on
the unapproved contract as the board’s treasurer, and both members were
on the board when it approved material alterations to the common
elements and some draws from the improper line of credit. Therefore, the
two members’ involvement was at most approval, and as in Kaplan, even
a director’s approval of a transaction may not necessarily show a lack of
independence. Id. Through their affidavits, the committee members
showed that they had been appointed to the board after the majority of the
events upon which the complaint was based. Nothing in the record
showed any relationship between the committee members and the named
defendants to suggest control over the committee members. Nor did the
court find that appellant’s attempt to amend her complaint to add them

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as defendants impacted their independence. The trial court did not err in
concluding that the investigative committee was independent.

   Appellant also claims the court erred in determining that the
investigation was reasonable and made in good faith. She maintains that
the court was required to address the accuracy of the report’s substantive
findings. We disagree that the court must independently assess the
validity of the report’s conclusions.

    Section 617.07401(3) permits the court to dismiss a derivative lawsuit
when the investigative committee “has made a good faith determination
after conducting a reasonable investigation upon which its conclusions are
based that the maintenance of the derivative suit is not in the best
interests of the corporation.” Section 617.07401(3)(b)’s plain language
does not require courts to question a special committee’s recommendation
as long as the court found the committee was independent and conducted
its investigation reasonably and in good faith. Atkins v. Topp Comm, Inc.,
874 So. 2d 626, 627 (Fla. 4th DCA 2004) 1 (“We conclude that trial courts
in this state are not required to evaluate the reasonableness of an
independent investigator’s final recommendation[.]”); see also Cornfeld v.
Plaza of the Ams. Club, Inc., 273 So. 3d 1096, 1099–1100 (Fla. 3d DCA
2019) (“[T]he independent investigator in this case . . . examined the merits
of the proposed claims and concluded that the derivative suit was not in
the corporation’s best interest. . . . The trial court did not abuse its
discretion by adopting [the investigator’s] factual findings and legal
conclusions, and finding that the report was reasonable and conducted in
good faith[.]”). The court is not required to apply its own business
judgment to assess the merits of the committee’s conclusions.

    The trial court thoroughly evaluated how the investigative committee
conducted its review of the allegations and the steps it took to ascertain
whether the derivative suit was in the Association’s best interest. The
court found that the investigation was thorough and conducted in good
faith. The court complied with the statutory directive.

  For the foregoing reasons, we affirm the dismissal of the derivative suit
pursuant to section 617.07401(3), Florida Statutes.

    Affirmed.

1 Atkins concerned section 607.07401(3)(b), Florida Statutes (2004), but section
617.07401(3)(b), Florida Statutes, contains identical language except that the
statute applies to “members” of a non-profit corporation instead of “shareholders”
of a business corporation.

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CIKLIN and FORST, JJ., concur.

                          *       *        *

   Not final until disposition of timely filed motion for rehearing.

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