COURT DISMISSES HOA MEMBERS’ LAWSUIT AGAINST ASSOCIATION FOR VIOLATIONS OF DECLARATION AND BYLAWS BECAUSE IT WAS NOT FILED AS A “DERIVATIVE” ACTION

This case involved a dispute between a homeowners association (“Association”) and five of its members (“Members”) over claims alleged in a lawsuit filed by Members that Association had violated its Declaration and Bylaws in numerous respects, including: (i) improperly suspending the voting rights of members; (ii) failing to follow proper voting, election, and meeting procedures; (iii) misappropriating funds; (iv) failing to follow the proper budgeting process; and (v) improperly amending the Declaration. In the lawsuit, Members sought a declaratory judgment that Association had violated the Declaration and Bylaws, and an order directing Association to comply with the Declaration and the Bylaws.  The lawsuit filed by Members was an action by the individual Members, and not a “derivative” action.

Association filed a motion to dismiss Members’ action for failure to state a claim upon which the requested relief could be granted based on a state statute pertaining to derivative actions. In its motion, Association contended that because the wrongful conduct alleged in Members’ complaint did not impact Members uniquely and impacted other members of Association and the Association as a whole, Members lacked standing to bring their lawsuit on their own behalf and had to file the case as a derivative action on behalf of Association. The trial court found that Members lacked standing to: