Do you know what fiduciary duties your condominium board owes? And to whom the duty is owed?
First, what, exactly, is a fiduciary duty? The nature of fiduciary duties depends on the nature of the relationship between the parties but, at its simplest, it is a duty of loyalty and good faith. It is an obligation to act for the benefit of another. It is a well-established general principle that an organization’s board has a fiduciary duty to the organization.
Consistent with this general principle, members (or trustees) of a condominium’s board also have certain fiduciary duties. But, you may be asking, to whom is that fiduciary duty owed? The answer is surprisingly clear: In Massachusetts, members of condominium boards owe a fiduciary duty to the condominium association (or trust), not to any individual condominium owner. See, e.g., Cigal v. Leader Dev. Corp., 408 Mass. 212, 219 (1990).
Why is that answer surprising? Because notwithstanding the clarity in the law, individual unit owners continue to bring unsuccessful breach of fiduciary duty claims against condominium boards and their members. For example, in 2002, the Supreme Judicial Court affirmed a grant of summary judgment for defendants on a breach of fiduciary duty claim brought by individual owners of commercial condominium units, citing to Cigal and reiterating that, “as matter of law, members of a governing board of a condominium association, in the capacity of the trustees here, owe no fiduciary duty to individual condominium owners.” Office One, Inc. v. Lopez, 437 Mass. 113, 125 (2002).
Likewise, in 2005, the Appeals Court affirmed a judgment in favor of defendants on breach of fiduciary duty claims because the defendants owed no fiduciary duty to plaintiff, an individual unit holder. See Kline v. Shearwater Ass’n, Inc., 63 Mass. App. Ct. 825, 838 (2005). In 2009, the Appeals Court affirmed the trial court’s dismissal of breach of fiduciary duty claims because no fiduciary duty was owed to the individual unit holder. See Ambrose v. Dyson, 74 Mass. App. Ct. 1122, *1 (2009) (unpublished).
Again in 2010, the Appeals Court emphasized that no fiduciary duty is owed to individual unit owners. Davagian v. Cape Codder Condo. Tr., 77 Mass. App. Ct. 1104, *1 (2010) (unpublished). The Appeals Court affirmed that principle yet again in 2013, see Finnegan v. Coughlin, 83 Mass. App. Ct. 1139, *1 (2013) (unpublished), and yet again in 2016, see Gollon v. Caramazza, 90 Mass. App. Ct. 1108, *1 (2016) (unpublished); Bettencourt v. Trustees of Sassaquin Vill. Condo. Tr., 90 Mass. App. Ct. 1106, *3 (2016) (unpublished).
Condominium unit-owners are not without recourse, however. While a unit-owner her- or himself cannot bring suit against a condominium board for breach of fiduciary duty, the condominium association can. See, e.g., Cigal, 408 Mass. at 219. If the association fails or refuses to bring suit, the unit-owner(s) may be able to bring suit derivatively on behalf of the association. See, e.g., Cote v. Levine, 52 Mass. App. Ct. 435, 439 (2001). That is, the unit-owner(s) may be able to bring suit in the association’s name.
Bear in mind that there are requirements that must be met to bring suit derivatively, requirements that differ depending on the facts and circumstances of each case, but generally include an obligation to make a demand on the condominium board and/or the other unit-owners to bring suit, or establish why a formal demand would have been futile. See, id. at 439-443.
Litigation is costly and time-consuming and litigation on behalf of the wrong party is a waste of time and money. As set forth above, individual unit-owners are not the proper party to bring suit against a condominium board for breach of fiduciary duty. Accordingly, if unit-owners believe the condominium board is in breach of its fiduciary duties to the condominium association, the unit-owners, in consultation with an attorney, should determine whether suit can be brought derivatively on behalf of the association before bringing suit.