Former Association Member Cannot Sue for Breach of Fiduciary Duty – Litigation, Mediation and Arbitration

Facts

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

“maintain all rights detailed in the articles of [the
Association]. On the other hand, members shall omit any liability for fees (such as maintenance fees) detailed by the articles of association. [the Association]. When the settlement amount for each Member [has] been paid in full, members lose all rights and responsibilities[ ] granted by the regulations, relating to the units mentioned above. »

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 2020, Kato was removed from his position as leader and director of the association.

Six months later, Kato sued the director, board members, association attorney, and association, claiming that the officers and directors breached their fiduciary duties, that the attorney s was engaged in deceptive marketing 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 gives Kato the last of the payments due to him under the CSA. “Kato refused to deposit the check.”

Court of First Instance

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

Court of Appeal decision

The appeals court upheld the trial court’s decision that Kato lacked standing and dismissed his claims for lack of jurisdiction. The court’s analysis went as follows: Evidence showed that Kato had entered the CSA under which he was to receive $30,500 in exchange for a release from “all claims, disputes, actions and causes of action”. Once he received the final installment, whether he deposited it or not, “he was no longer ‘Owner’ because he…wasn’t even ‘Member’ of the Association anymore. ” Therefore, the case became moot and Kato lost his standing to maintain any claim.

LESSONS LEARNED

1. If you reach a settlement agreement that releases all claims, you cannot sue.




2. Refusing to cash a check that was the final payment due on the release will not work as a way to claim that you haven’t been paid, in the absence of something wrong with the payment or release.

Kato v Media and Financial Consulting Group, Inc.., Not reported in SW Rptr. (Tex. Ct. App. 2021)

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.