McGill v. Lion Place Condo. Assn.
291 Neb. 70
| Neb. | 2015Background
- Lion Place Condominium (16 units) had certain basement/first-floor common elements designated as limited common elements for the commercial units (owned by Henery). Association was an unincorporated unit owners association with an executive board.
- In 2008 Henery offered to buy the limited common elements; after competing offers the association voted in December 2008 to accept Henery’s offer and the president executed an amendment and deed conveying the limited common elements to Henery.
- McGill (developer/co-owner) first sued individually in 2010; that suit was dismissed for lack of individual standing. He then filed a derivative suit on behalf of the association alleging the sale was invalid under the Nebraska Condominium Act.
- At trial evidence showed 13–14 of 18 possible votes approved the sale (Henery contended 14 for, 4 against); the district court found approval at most 77.7% and no recorded owner-signed agreement as required by statute, and held the conveyance void.
- The district court awarded McGill $28,016 in attorney fees and $1,209.14 in expenses and costs. Defendants appealed; the Nebraska Supreme Court affirmed liability, affirmed attorney fees, vacated the award of expenses/costs and remanded to determine taxable costs.
Issues
| Issue | Plaintiff's Argument (McGill) | Defendant's Argument (Henery / Association) | Held |
|---|---|---|---|
| 1. May a unit owner bring a derivative suit on behalf of an unincorporated condo association? | Derivative suit is appropriate to protect association interests; demand was made and refused. | No statutory authority; association unincorporated so Business Corporation Act derivative procedures don’t apply. | Yes. Equity permits derivative suits for unincorporated condominium associations if demand is made or demand would be futile. |
| 2. Does the business judgment rule bar the derivative suit because the board refused to act? | Board refusal may have been improper given interested directors. | Board’s refusal was a protected business judgment made in good faith. | Business judgment rule does not apply because interested directors (Henery and son) participated; protection requires a majority of disinterested directors. |
| 3. Was the derivative action barred by claim or issue preclusion from McGill’s prior individual suit? | Different capacity (representative) permits new suit; association had not litigated sale. | McGill in privity with association; prior dismissal should preclude relitigation. | Not barred. Different capacity and not in privity; derivative suit allowed. |
| 4. Was the sale/transfer of limited common elements valid under Neb. Rev. Stat. § 76-870? | Sale complied (owners using elements, vote/consent sufficient). | Only owners of the limited-common units needed to consent since elements were allocated to them. | Void. § 76-870 requires both approval by persons entitled to cast at least 80% of association votes and unanimous agreement of owners of units to which the limited common elements are allocated; here 80% threshold was not met and no recorded owner-signed agreement existed. |
| 5. Were attorney fees, expenses, and costs recoverable? | Fees and costs recoverable under § 76-891.01; expenses included. | No statutory basis for expenses; award improperly included 2010-action fees and miscellaneous expenses. | Fees recoverable under § 76-891.01 (trial court’s fee amount affirmed). Expenses (postage, copies, reporter, etc.) are not authorized by that statute absent specific statutory authorization; award of expenses vacated and remanded to determine taxable costs. |
Key Cases Cited
- Hara v. Reichert, 287 Neb. 577 (Neb. 2014) (res judicata and collateral estoppel principles)
- First Nat. Bank of Omaha v. Davey, 285 Neb. 835 (Neb. 2013) (statutory interpretation is question of law)
- Sadler v. Jorad, Inc., 268 Neb. 60 (Neb. 2004) (appellate review of equitable actions)
- Weimer v. Amen, 235 Neb. 287 (Neb. 1990) (derivative suit by member of unincorporated association)
- Schoon v. Smith, 953 A.2d 196 (Del. 2008) (equitable origins of derivative actions)
- Caprer v. Nussbaum, 36 A.D.3d 176 (N.Y. App. Div. 2006) (permitting condominium unit owners to bring derivative suits)
- Kubik v. Kubik, 268 Neb. 337 (Neb. 2004) (definition of derivative action in prior Nebraska caselaw)
- Hickman v. Southwest Dairy Suppliers, Inc., 194 Neb. 17 (Neb. 1975) (privity and capacity analysis for preclusion)
- VanDeWalle v. Albion Nat. Bank, 243 Neb. 496 (Neb. 1993) (privity requires substantial identity of interests)
- National Am. Ins. Co. v. Continental Western Ins. Co., 243 Neb. 766 (Neb. 1993) (discussing recoverability of litigation expenses)
- City of Falls City v. Nebraska Mun. Power Pool, 281 Neb. 230 (Neb. 2011) (limits on recoverable costs and role of legislature in defining taxable costs)