Court Opinion

ID: 5282505
Source: CourtListenerOpinion
Date Created: 2022-01-06 22:12:21.523809+00
Date Added: 2024-06-11T08:28:24.075217
License: Public Domain

NOBLE, J.,
Concurring in part, Dissenting in part.
I differ with the majority’s well written opinion only on the point that a non-profit corporation owes no fiduciary duty to individuals who own property in the building. The nonprofit at issue here is the Council of Co-owners that governs the use of the property for all the owners, in the owner’s dual roles as the collective unit of owners, and as individuals who are an owner. The individual owner in this case is Patricia Ballard.
Before getting to the substance, I must emphasize that Ballard has two relationships with the Council. See, e.g., Frances T. v. Village Green Owners Assn., 42 Cal.3d 490, 229 Cal.Rptr. 456, 723 P.2d 573, 587 (1986) (“Plaintiff [the condo owner] therefore had a dual relationship with defendants [the association].”)
First, she is a co-owner with every other owner in the building and therefore a member of the Council, which has been incorporated as a non-profit corporation, 1400 Willow Council of Co-Owners, Inc. Her membership in the Council is akin to being a shareholder in a for-profit corporation. Her corporate relationship derives from this. This relationship controls any claims that affect the building and co-owners as a whole. The fiduciary relationship that the majority describes stems from this relationship and runs only to the co-owners as a whole. For that reason, any harm to the co-owners as a whole, such as damage to the common areas, may be litigated only by the Council itself or, if the association declines, by a derivative suit in the name and for the benefit of the Council. See, e.g., Cigal v. Leader Development Corp., 408 Mass. 212, 557 N.E.2d 1119, 1123 (1990); Avila South Condominium Ass’n, Inc. v. Kappa Corp., 347 So.2d 599, 609 (Fla.1977).
But Ballard is also an individual owner, holding her interest in her own right, alone, and without interference from any other owner. She therefore has a second relationship stemming from her status as a beneficiary of the services offered by the Council. Some jurisdictions have described this second relationship as similar to that between a landlord and tenant. See Frances T., 229 Cal.Rptr. 456, 723 P.2d at 587. This interest is not co-operative; it is singular. As an owner of an interest held only by her, she has a deed of ownership that sets forth both how her ownership relates to the other owners in the building, but which also sets forth her rights as an individual owner. As a co-owner and an individual owner, she has certain contractual rights and expectations that are set forth in the document describing her individual interest, and in the Master Deed, which describes how that inter*244est is governed, in this case by the Council of Co-owners.
While the Council of Co-owners is the governing entity, it acts through its Board. The Board is comprised of members of the Council. When the Board acts, or in this case fails to act, it is the action of the Council, not of the Board members individually.
As described by the majority, a dispute arose between Ballard and the Council over replacing the windows in her condominium, which resulted in several claims and counterclaims being filed. Ballard accused the Council of failing to maintain the exterior structure of the building, which caused water to enter her unit through the structure around her windows and to damage her property. The Council claimed that Ballard was responsible for replacing the windows, which had become a hazard. Eventually, the Council entered her condominium and replaced the windows. During this time, Ballard unsuccessfully tried to sell the condominium unit and continued paying fees to the Council.
When the matter proceeded to court, Ballard alleged breach of contract and breach of fiduciary duties, both under the master-deed laying out the duties of the Council. The Council counter-claimed that Ballard was liable for the cost of replacing the windows.
When the matter went to trial, the jury found that Ballard’s windows needed to be replaced but that they needed to be replaced because of the Council’s negligence in maintaining the outside of the building. The trial court instructed the jury to then decide whether the Council, acting through its Board of Directors, “exercise[d] good faith and loyalty in conducting the business of the Council which include[d] an obligation to exercise good faith and loyalty in making decisions with respect to all co-owners, including co-owner, Patricia Ballard.” The instructions also asked whether the Council’s failure to comply with this duty of good faith and loyalty was a substantial factor in causing loss to Ballard. The jury concluded that the Council had failed to comply with this duty and that it was a substantial factor in causing the loss to Ballard. As a result, the jury awarded Ballard $54,000 to compensate her for condominium membership dues she paid while trying to sell the condominium.
This case derailed at the Court of Appeals, partly because the parties and the Court failed to separate Ballard’s status as a co-owner from her status as an individual owner. To that end, only her corporate relationship was analyzed, and the Court of Appeals further erred when it applied a statute pertaining to suits against directors of a non-profit corporation. That conclusion was wrong, because Ballard’s claim was not against the directors, but was an individual claim against the Council directly. This decision, however, led the Court of Appeals, and I believe the majority of this Court, down the wrong path of analysis.
This case is not about Ballard’s corporate position. It is not about a joint, cooperative issue such as damage to a common stairwell. It is not about whether the Council owes a duty to the co-owners as a body; certainly it does, and I agree with the majority’s statement of the law in that regard.
This case is about what Ballard, as an individual owner, had a right to expect from her management company, the Council. The master deed provided that decisions about common elements were to be made by the Council. One of those decisions regarded keeping the walls around all units in adequate repair so that no owners’ windows got damaged from building leaks. The one area where that did *245not happen, according to the fact-finding of the jury, was around Ballard’s windows. Only her windows had to be replaced.
Under her deed, the windows belonged to her, not the Council or any other owner. The damage was done to her property individually, and to the common property of the walls.
All the building’s owners had an interest in the walls, and an expectation that the Council would oversee their maintenance. The Council clearly owed a corporate duty to the co-owners.
This does not — cannot—mean that the Council did not also owe a duty of proper maintenance to Ballard for her individual property as well. Her deed directed that she look to the Council to ensure the maintenance necessary to protect her individual slice of the pie.
When a member of a collective is harmed, but no one else is, the member may sue for her individual damages. This is true, even in a corporate setting: “Where the shareholder suffers an injury separate and distinct from that suffered by other shareholders,’ or the corporation as an entity, the shareholder may maintain an individual action in his own right.” 2815 Grand Realty Carp. v. Goose Creek Energy, Inc., 656 F.Supp.2d 707, 715-16 (E.D.Ky.2009) (quoting Gaff v. Federal Deposit Insurance Corp., 814 F.2d 311, 315 (6th Cir.1987)).
And this is true in the condominium-association setting. Most of the cases involving condominium disputes present plaintiffs who seek to recover individually what belongs to the collective owners. In those cases, “[wjhere the ‘plaintiffs are ... seeking recovery of funds properly owing to the unit owners’ association,’ they can only assert their claims through a derivative suit.” Cote v. Levine, 52 Mass.App.Ct. 435, 754 N.E.2d 127, 131 (2001) (quoting Cigal, 557 N.E.2d at 1123). The individual plaintiffs cannot recover. If Ballard had made such a claim, the majority’s approach would be correct.
But this is not such a case. Ballard has made individual claims relating only to damage to her as an individual. “[Wjhere the plaintiff ha[s] alleged individual damages in addition to derivative damages, the ... judge properly differentiate^] between the two causes of action and denie[s] summary judgment on as much of the complaint as alleged individual damages.” Id. Here, Ballard has not even brought both types of claims; instead, she has made only individual claims.
As an individual owner of a unit of the condominium project maintained by the Council, her claims do not arise out of her membership relationship or flow to her membership; instead, her claims flow from the fact that she owns one of the units in the building which she claims was harmed by the Council. Those claims belong to her individually, as the harm she claims is distinct from the harm other co-owners may have suffered, and thus can only be brought by her as an individual.
This is a basic tenet of property ownership that has not been obliterated by condominium living, even though some property rights are restricted by condominium deeds. The condo purchaser is aware, based on the master deed and her individual ownership deed, where common interests end and private ownership begins.
Here, the jury found that the windows needed to be replaced because the Council had not properly performed its duty to maintain the building area around her windows, which was a breach of its contract with her through the master deed, and of the attendant fiduciary duty inherent in the contract.
*246So Ballard filed this action against the Council claiming that the Council breached its contract with her individually because it failed to properly maintain the building around her windows, and further, did not deal fairly with her about repairing the resulting damage, thus violating the general fiduciary duty — that “of good faith and fair dealing” — contained in all contracts. Ranier v. Mount Sterling Nat. Bank, 812 S.W.2d 154, 156 (Ky.1991).
As we have noted, “the circumstances which may create a fiduciary relationship are ... varied.” Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 485 (Ky.1991). “[A]s a general rule, ... such a relationship is one founded on trust or confidence reposed by one person in the integrity and fidelity of another and which also necessarily involves an undertaking in which a duty is created in one person to act primarily for another’s benefit in matters connected with such undertaking.” Id. Each owner relies on the Council to maintain and repair the common portions of the building because such projects are beyond the means and control of individuals who personally own only a part of the building. They must necessarily be able to trust that the Council will carry out that duty in good faith and a loyal manner.
Indeed, the notion of owing fiduciary duties only to the co-owners as a group makes no sense in this light, when the harm accrues only to one individual owner. The co-owners cannot sue collectively for harm to a single owner. (Suits on behalf of the association collectively are only for collective harm, and can be asserted only by the association or derivatively on behalf of the association.) Only the single owner has standing to sue for her individual harm.
This then leads to a bigger question: Just who is the individual owner, who is harmed by Council neglect, supposed to sue for that harm? The individual owner cannot sue board members individually, because the negligence was not done by any member individually. The negligence was done when the Council failed to properly maintain the walls around her unit. No one board member did that. It was done by Council action, or in this case, neglect. And suing the Board as a whole is suing the Council, as the Board acts as the agent of the Council. Ballard named the correct party.
In essence, the majority’s approach would leave Ballard without a remedy for harm to her individual interests under the theory that the Council can never owe a duty of good faith and fair dealing to an individual owner. The majority reaches this conclusion because it can find no Kentucky case law finding such a duty. But the novelty of a question — the reason we accepted discretionary review — surely cannot be grounds for finding no duty.
And the proposition that a condominium association can owe fiduciary duties to individual owners is not a mythical scenario. It simply requires the right circumstances. Those circumstances were present in Sassen v. Tanglegrove Townhouse Condominium Ass’n, 877 S.W.2d 489 (Tex.App.1994). In that case, the plaintiff sued her condominium association for breach of fiduciary duties related to its repairs to her unit after a fire. The court allowed the claim because the condominium declaration gave the association the exclusive power to make such repairs. Id. at 492-93. As the plaintiffs agent in' this regard, the association owed her fiduciary duties, which is breached by acting arbitrarily and capriciously. A later decision by the same court found that there was no fiduciary duty owed to the individual co-owners because the action in question (hiring household help) was not the exclusive province of the association. Harris v. Spires Coun*247cil of Co-Owners, 981 S.W.2d 892, 897-98 (Tex.App.1998).
Ballard’s case is similar to Sassen. The Council had exclusive authority to maintain the exterior of the building. Ballard’s harm arose because the Council failed to properly engage in this maintenance, which led to her windows being damaged and needing to be replaced. This, in turn, led to a delay in the sale of her condominium, and she consequently had to continue paying her condominium fees. This implicated the duties that the Council owed to Ballard individually. It was thus proper to instruct the jury on whether the Council acted in good faith in this capacity and whether any failure harmed Ballard and entitled her to damages.
The crux of the problem in this case is that the jury awarded damages under an instruction for breach of fiduciary duty that is poorly worded. The instructions begin by asking whether Ballard’s windows needed to be replaced. The jury said yes. The second question asked whether the replacement of the windows was caused by the Council’s failure to provide reasonable maintenance to the building exterior. The jury answered yes. By this factual finding, the jury found that the Council had breached its contractual duty to Ballard as an individual owner, not to the co-owners as a whole, because the other owners “had no dog in that fight.”
Then the jury was instructed as follows:
Instruction No. 4
It is the duty of the Council, acting through its Board of Directors, to exercise good faith and loyalty in making decisions with respect to all co-owners, including co-owner, Patricia Ballard. If you find, from the evidence, that the Council, acting through its Board of Directors, failed to comply with this duty and that such failure was a substantial factor in causing loss to Patricia Ballard, you shall find for Patricia Ballard. Otherwise you shall find for the Council.
Question No. 4
From the evidence, do you find the Council, acting through its Board of Directors, failed to comply with its duty as set forth in Instruction No. 4?
The jury answered yes, and also found that such failure was a substantial factor in causing loss to Ballard. Based on its findings, the jury then awarded the sum of $54,000.00 in damages for monthly condominium fees that it obviously believed she should not have had to pay due to the Council’s delays. Interestingly, the jury made no award to Ballard for her cost of moving, property taxes and insurance, mortgage interest, assessments or condo upkeep expenses, no doubt because those items went to her benefit in her choice to move and through the eventual sale of the condo.
In short, the jury awarded what it perceived as equitable damages, which appropriately follow the unwritten equitable terms of any contract of good faith and fair dealing toward one to whom one owes a duty.
However, the language of the instruction is poorly worded. On its face, it appears to ask the jury about the Council’s duty to the co-owners, not just its duty to Patricia Ballard as an individual owner.
That is obviously not what was at issue in this case, not what the proof was about, and not what the jury understood the issue to be. There had been no claim that the Council had breached its fiduciary duty to all the co-owners as a whole. While the language in the instruction, taken in a vacuum, points to a different set of facts, examination of the whole case shows that there was no confusion on the jury’s part about who was before them and exactly what her interest was. I do not believe *248this use of the word co-owner instead of owner is significant enough to warrant reversal. And, it further illustrates that the court and possibly the attorneys failed to distinguish in what capacity Ballard was before the court. The jury, however, had no such difficulty.
A condominium association has to act reasonably, as we all do, when doing the things it has agreed to do. It also has to undertake its contractual obligations in good faith. Here, under the master-deed, the Council agreed to maintain the common areas of the building. Under Ballard’s theory at trial, her harm was caused by the Council’s negligence and lack of good faith in maintaining the building around her windows, which in turn delayed her sale and caused her to continue to pay association fees totaling $54,000.
The majority actually agrees that the jury could have found for Ballard under the theory that the Council failed to comply with its contractual obligations in good faith. The majority then dismisses the jury’s finding by stating: “we cannot say that the jury’s finding of a breach of fiduciary duty is equivalent to a finding of failure to act in good faith.” But the jury did not find a “breach of fiduciary duty,” as suggested by the majority. Rather, the jury, as instructed, found that the Council did not “exercise good faith and loyalty in conducting the business of the council.” (Emphasis added.) Although the instruction may have been intended to lay out the fiduciary duty of the Council, it specifically asked the jury whether the Council had breached a duty of “good faith” — which is exactly what the majority agrees could give rise to the Council’s liability. And, as noted above, Ballard had pleaded a breach of contract claim. The jury’s finding under this instruction, therefore, is sufficient to make the Council liable under the majority’s own theory of the law. I cannot see how the jury’s finding under this instruction differs from the finding that the majority agrees would have allowed the jury to properly find for Ballard.
Holding otherwise strips condominium owners of any remedy for harm caused to them by a corporate condominium association, and allows only claims for harm to all the owners in a condominium project. This ignores the reality that most injuries are not to the owners as a whole, but are instead to individuals. This rule allows abuse of owners who fall into disfavor, as Ballard has claimed, and should also be rejected out of concern for basic fairness. The simple fact is that the jury believed Ballard was mistreated by the Council, which was bound under the master deed. The trial court’s instructions were not out of step with the law in this respect; at most, they fail in their description of the relationship at issue.
For that reason, I would reverse the Court of Appeals and reinstate that portion of the trial court’s judgment awarding damages for the Council’s failure to exercise reasonable care in maintaining the building and failure to act in good faith as a breach of its fiduciary duties.
SCOTT, J., joins.