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Condo | HOA Lawyers

Former Association Member Can’t Sue for Breach of Fiduciary Duty

Facts

In 2014, Kato purchased a unit at an association, thereby becoming a member of the association. Kato also joined the board and became its President/Treasurer.  Later that year, Kato’s unit, and two other units in the association were destroyed by fire.  The association collected the insurance proceeds from the loss, but decided not to rebuild.  Kato was the president was president at the time and remained president until 2020.  Three years later the association entered into a “Confidential Settlement Agreement” (“CSA”) with the three units for their fire losses, and as part of that agreement was obligated to pay Kato $30,500.  The payment was to be made in installments and until the last payment was made Kato would:

“maintain all rights detailed in the By-Laws of [the Association]. On the other hand, the Members shall omit any responsibilities related to fees (such as maintenance fees) detailed by the By-Laws of [the Association]. When the settlement amount for each Member [has] been paid in full, the Members shall forfeit all rights and responsibilities[ ] granted by the By-laws, related to the units mentioned in the foregoing.”

Two years later, in 2019, while Kato was still president, the association sued Kato for allegedly stealing “hundreds of thousands of dollars from the Association.”  In January of 2020 Kato was removed as an officer and director of the association.

Six months later, Kato sued the manager, board members, attorney for the association, and the association claiming the officers and directors had breached their fiduciary duties, that the attorney had engaged in deceptive trade practices and seeking an order prohibiting the association from paying the management company or allowing the management company to take any action on behalf of the association.

Two months later, on September 10, 2020, the association tendered to Kato the last of the payments due him under the CSA.  “Kato refused to deposit the check.”

Trial Court

Shortly after tendering the final payment, the association filed a motion for summary judgment.  The association “argued that (1) Kato’s claims belong to the Association, not to him personally, and (2) any claims that he might have had were extinguished under the terms of the CSA when the Association tendered payment of the remaining [amount] due under the agreement.”  The trial court granted the association’s motions and dismissed Kato’s claims with prejudice.  Kato appealed.

Appellate Court Decision

The appeals court affirmed the decision of the trial court finding that Kato lacked standing and dismissed his claims for lack of subject matter jurisdiction.  The court’s analysis went like this:  the evidence showed that Kato entered the CSA pursuant to which he was to receive $30,500 in exchange for a release of “any and all claims, disputes, actions, and causes of action.”  Once he received the last payment, regardless of whether he deposited it, “he was no longer an ‘Owner’ because he … was no longer even a ‘Member’ of the Association.”  Therefore the case became moot and Kato lost his standing to maintain any claims.

LESSONS LEARNED
  1. If you enter into a settlement agreement that releases all claims, you can’t file suit.
  2. Refusing to cash a check that was the final payment due on the release won’t work as a means to claim you have not been paid, absent something being wrong with the payment or the release.

Kato v. Media and Financial Consulting Group, Inc., Not Reported in S.W. Rptr. (Tex. Ct. App. 2021)

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