No Breach of Fiduciary Duty when a Board Vote is Unanimous

In Sunnyside Resort Condominium Association v Beckman, an unpublished Michigan Court of Appeals opinion, a condominium was formed consisting of 8 cabin units, two houses, and four vacant lots.  The original developer and the co-owner controlled board, which included the lot owners, by unanimous vote for many years did not assess the lots under the ultimately mistaken belief that, since there were labeled incomplete.  Once the error was discovered, the association attempted to assess the vacant lots to recover for the prior years, for the present year, and for a share of the expenses of the litigation that subsequently ensued.  The association recorded a lien against the unit and started foreclosure, as well as alleging breach of fiduciary duty.

The lot owners filed a counterclaim and third party complaint against the board member who signed and recorded the lien, claiming breach of fiduciary duty by the association, indemnification under the terms of the documents, and for slander of title. After trial, the district court found some of the assessments against the lots valid, other assessment invalid, determined that the association was obligated to indemnify the board member/lot owner, and determined that the board member/lot owner had no slander of title claim because he had not suffered any damages.  The court also awarded costs and attorney fees against the association for rejecting a case evaluation award.  The association and the third party defendant appealed to the circuit court, which affirmed the district court in all respects.

On appeal to the Michigan Court of Appeals, the court affirmed in part reversed in part, and remanded the case to the district court.

First, considering the definition of regular, additional, and special assessments, the court affirmed the lower court’s finding that some, but not all, of the assessments against the vacant lots were improper because not approved by vote of the membership as special assessments.

The court also held that the board member/lot owner could not have breached his fiduciary duty to the association by approving budgets which did not assess his lots, because the votes had been unanimous.  Even without his vote, the budgets which exempted the lots would have been approved.  Because he did not breach his fiduciary duty, the trial court was correct in holding that the association had an obligation to indemnify him under the condominium bylaws.

The decision not to award the association attorney fees under the MI Condominium Act was affirmed on appeal because, although the association did receive a judgment for some assessments, most of the association’s claims were dismissed by the trial court.  The decision to award the board member/lot owner sanctions under the case evaluation court rule was upheld on appeal because the association rejected the award, did not better its position at trial, and did not demonstrate any reason justifying a refusal to award the fees.  Finally, the court of appeals affirmed the dismissal of the slander of title claims because the board member/lot owner did not prove any damages.

This case has a fairly good discussion of a cause of action for breach of fiduciary duty, even when it found there was no breach.  It also has a good discussion of the difference between regular, additional, and special assessments.

© Steve Sowell 2022