760 S.E.2d 121
S.C. Ct. App.2014Background
- Shipyard Village condominium association (the Council) managed common elements per Master Deed and Bylaws; windows, frames, and casings were originally part of units but Board attempted 2006 amendment to make windows/doors limited common elements.
- Buildings A and B (built 1982) developed progressive water intrusion and concrete deterioration; multiple inspections from 1993–2009 identified leaking windows/doors, lack of flashing, stucco failures, and structural issues; consultants offered differing causes and repair scopes.
- The Board solicited reports, retained multiple engineering and construction firms, oversaw partial repairs, sought bids for large-scale rehabilitation, and proposed a multi-million dollar special assessment that failed by vote.
- Several owners in Buildings C and D sued the Council (negligence, breach of fiduciary duty, declaratory and injunctive relief) challenging the 2006 amendment and alleging the Council failed to investigate/coerce responsible co-owners for damage to common elements.
- The circuit court granted partial summary judgment for plaintiffs on duty and breach for negligence, holding the Council had an affirmative duty to investigate and the business judgment rule did not apply; Council appealed.
- The court of appeals affirmed that the Council had a duty to investigate, reversed the court’s rulings that the business judgment rule was inapplicable and that no factual dispute existed on breach, and remanded for trial on breach and causation.
Issues
| Issue | Plaintiffs' Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Council had a duty to investigate cause of damage to common elements | Bylaws and Master Deed impose affirmative duty to maintain common elements and thus must investigate causes and pursue responsible parties | Bylaws do not expressly impose an investigation duty; no such duty exists | Duty exists: Bylaws + law create a duty to investigate who caused damage to common elements (affirmed) |
| Whether the business judgment rule shields Board actions | Board acted within discretion; business judgment rule should not apply because Master Deed, Bylaws, and Act govern Board conduct | Business judgment rule applies to intra vires acts absent bad faith or fraud | Business judgment rule applies to intra vires acts; trial judge erred in broadly excluding it (reversed in part) |
| Whether Council breached its duty to investigate (no-trier-of-fact required) | Council failed to adequately investigate and enforce 2006 amendment, acted in bad faith, so no genuine issue exists | Council hired multiple experts, obtained conflicting reports, and relied on counsel and consultants—sufficient evidence it investigated | Genuine factual disputes exist about breach; summary judgment on breach was improper (reversed) |
| Applicability of fiduciary-duty standard versus business-judgment standard | Plaintiffs implied higher fiduciary obligation | Council argued board-level business judgment standard applies | Court rejected imposing heightened fiduciary standard; business judgment (reasonable good faith) is correct standard (fiduciary-summary-judgment reversed if granted) |
Key Cases Cited
- Queen’s Grant Villas Horizontal Prop. Regimes I-V v. Daniel Int’l Corp., 286 S.C. 555, 335 S.E.2d 365 (1985) (association that must maintain common elements has duty to pursue recovery for defects)
- George v. Fabri, 345 S.C. 440, 548 S.E.2d 868 (2001) (summary judgment standard)
- Dockside Ass’n v. Detyens, 294 S.C. 86, 362 S.E.2d 874 (1987) (business judgment rule shields board absent bad faith, fraud, or self-dealing)
- Kuznik v. Bees Ferry Assocs., 342 S.C. 579, 538 S.E.2d 15 (2000) (business judgment rule applies only to intra vires acts; ultra vires acts not protected)
- Seabrook Island Prop. Owners Ass’n v. Pelzer, 292 S.C. 343, 356 S.E.2d 411 (Ct.App. 1987) (corporation limited to powers granted by law, charter, bylaws; cannot defend covenant violations as reasonable alternatives)
- O’Shea v. Lesser, 308 S.C. 10, 416 S.E.2d 629 (1992) (boards of planned communities are not held to a heightened fiduciary standard; must exercise judgment reasonably and in good faith)
- Burnett v. Family Kingdom, Inc., 387 S.C. 183, 691 S.E.2d 170 (2010) (negligence involves mixed question; duty decided by court, breach by jury)