A derivative suit is one that is typically brought when a condominium board has failed or refused to redress a wrong
committed against the association. These lawsuits allow for a unit owner to step into the shoes of a condominium board and take legal action when the board is otherwise unwilling to advance a claim. In the past, it may not have been common practice to name the condominium board as a defendant in a derivative claim lawsuit. This was likely based on the thinking that it was counterintuitive to bring an action “on behalf of the board” and against the board as a defendant. However, a recent appellate decision has caused condominium law attorneys to take note that the association is a necessary party.
In an unpublished decision, the Appeals Court determined that a condominium trust is an indispensable party to a derivative action. In Hyman v. Conway, 105 Mass. App. Ct. 1118 (2025), the Court’s ruling provides that a failure to name a condominium trust as a party to such a lawsuit provides grounds for dismissal.
The plaintiff, Marita Hyman, owned a condominium unit at the Westport Point Condominium – a residential community consisting of seven “cottage style” units. The defendants, Christine and John Conway, built an addition onto their condominium unit at Westport Point that extended into the Condominium’s common area. The defendants did not seek Ms. Hyman’s approval for the addition – apparently in contravention of the Condominium’s governing documents as well as G.L. c. 183A, § 5.
Ms. Hyman filed suit in Bristol Superior Court claiming that the Conways improperly built an addition onto their unit – and into the Condominium’s common area – without seeking approval from all of the unit owners. She brought two claims for declaratory judgment, seeking an order for the removal of a porch and stairs attached to the Conways’ unit, as well as declarations that such construction encroaches on a common area and violated the plaintiff’s “lawful right to review the proposed building plans” under the condominium bylaws. The Conways moved to dismiss the complaint – arguing that Ms. Hyman lacked standing to advance a claim concerning the common area of the Condominium. The common area of the Condominium, the Conways contended, was within the purview of the condominium trust – not the individual unit owners. The Conways further argued that Ms. Hyman failed to join the condominium trust as a necessary party to the lawsuit.
The trial court (Sullivan, J.) ruled in favor of the Conways. The Court construed Ms. Hyman’s complaint as a derivative action, as she had made written correspondence to the board of trustees and attempted to discuss the subject porch at an annual meeting in an apparent attempt to meet the pleading requirements of Rule 23.1 of the Massachusetts Rules of Civil Procedure. The court then reasoned as follows:
In a derivative action seeking to compel the action of an association which has failed to redress a wrong committed against the trust, the trust is both an entity which would be affected by the declaration and also one of the parties which would have had to answer to a judgment in the plaintiff’s favor to effect complete relief. Thus, the trust is an indispensable party to this action. (Internal quotations and citations omitted).
The court allowed the Conways’ motion to dismiss – finding that Ms. Hyman failed to join the condominium trust as a necessary party. Ms. Hyman appealed the trial court’s decision. Before reviewing the Appeals Court’s decision, it helps to have a general understanding of a properly pled derivative action.
A Derivative Action
A proper derivative action is a lawsuit brought by one or more unit owners to enforce a right of the association. The derivative claim is an effective device in two primary circumstances: (1) to advance breach of fiduciary duty claims against sitting board members, and (2) to advance claims against a declarant or declarant-controlled entities while the declarant controls the board or when the declarant, as unit owner, still controls enough of the percentage interest in the condominium to elect its own slate of board members.
Procedural Requirements
The proper maintenance of a derivative claim requires strict compliance with certain conditions precedent as follows:
- Demand on the Board
Demand
must be made on the board, requesting that it take action (i.e., institute suit
against individual board members and/or the declarant) unless futile.
- Demand on the Unit Owners
Demand must be made on the unit owners to take action to compel the board to act or to otherwise secure the desired course of action (e.g., removal of the board) unless such request would prove futile (e.g., declarant owns or controls 90 percent of the beneficial interest) or too burdensome.
In most circumstances, it is advisable to make the demand to avoid any claim that demand was not futile. Counsel may have to take a calculated risk when there is a concern that such demand may telegraph an intention to file suit and cause the declarant to secret or convey assets.
Pleading
Requirements
A complaint for a derivative action shall:
- be verified by oath,
- allege unit ownership at the relevant time or purchase from an owner who owned at the relevant time,
- allege efforts made to obtain action from the board,
- allege efforts made to obtain action from the unit owners, and
- allege reasons no such efforts were made.
In addition, in order for a derivative action to be maintained, it must appear that the plaintiff fairly and adequately represents the interests of the unit owners similarly situated. Finally, the action cannot be dismissed or settled without (1) court approval, and (2) notice to the unit owners of same as directed by the court.
Common Pleading Deficiencies in Derivative Suits
The derivative suit is often misused or misapplied by unit owners. There are several rules of thumb that can be employed in analyzing the appropriateness of derivative claims. A derivate claim is deficient and subject to a motion to dismiss in the following circumstances:
1. The Claim Is Brought by Someone Other than a Unit OwnerThis criterion needs no further elaboration.
2. The Wrong Complained of Was Committed Against Individual Unit Owners, Not the Association
A wrong
committed against a unit owner or unit owners may be brought by those
individuals in their own name. Owners
who have suffered an injury have standing to bring claims in their own name
(e.g., damage to unit interior, improper assessments, etc.). Such claims are not properly brought as
derivative claims.
3. The
Recovery Is Sought for the Unit Owner(s) Alone
A unit
owner’s request for recovery in a proper derivative action is made on behalf of
the board. When the recovery and/or
relief requested is for, or on behalf of, the unit owners in their individual
capacities, the claim cannot be properly brought as a derivative action.
4. The
Claim Is for a Breach of Fiduciary Duty Owed to a Unit Owner
This claim is flawed for two reasons. First, the board does not owe a unit owner any fiduciary duty. Second, such claim clearly purports to advance (albeit otherwise flawed) a claim possessed by an individual owner, not the association.
5. The Lawsuit Is Advanced Without Naming the Association
We can now add another pleading deficiency to the list – failing to name the condominium trust as an indispensable party to the derivative action. The Appeals Court affirmed the trial court's dismissal of Ms. Hyman’s lawsuit, reasoning that “[i]n such an action, the association must be joined as a party because the claim is alleged to be one that the association should be pursuing on its own behalf – here, a claim of unlawful expansion onto common elements.” While unpublished (meaning that, although the case can be cited for its persuasive value, it does not constitute binding precedent), the Hyman decision provides a clear indication of how a court is likely to rule on this issue going forward. A failure to name a condominium board as a party to a derivative lawsuit going forward would be a mistake.
Derivative claims present difficulties for even the most seasoned condominium law practitioners. Although the trial court in this Hyman case was rather liberal in construing her lawsuit as a derivative claim, the procedural requirements of Rule 23.1, described above, actually prescribe fairly cumbersome prerequisites for filing a derivative action. Care must be taken in order to avoid having such a lawsuit dismissed on a technicality, such as failing to name the condominium trust as a necessary party.
A principal in the Quincy and Boston based firm of Moriarty,
Bielan & Malloy LLP, Dave has been specializing in complex civil litigation
at both the trial and appellate levels. He has extensive experience in the area
of construction litigation. Dave’s practice is focused on construction, real
estate, and condominium matters. His clients include condominium associations,
real estate developers, general contractors, subcontractors, and individuals. Dave can be contacted at brogers@mbmllc.com.
