TC Palm Q&A Column, November 19, 2017

By November 19, 2017News, Questions & Answers

Editor’s note: Attorneys at Goede, Adamczyk, DeBoest & Cross, respond to questions about Florida community association law. The firm represents community associations throughout Florida and focuses on condominium and homeowner association law, real estate law, civil litigation, estate planning and commercial transactions.

Q: I am a member of our homeowners’ association board of directors, who was recently appointed to fill a vacate position. I have never acted as a board member. I read some materials relating to the work of board members which stated that board members owe the homeowners a fiduciary duty. Could you explain what that means in the context of the work board members do while acting in that capacity?

N. B., Stuart, Florida

A: Your question raises a very important legal principle when dealing with the operations of a not-for-profit community association. When members of a homeowners’ association ascend to the position of a member of the association board of directors, they occupy their board seats as the representatives of all of the homeowners who reside in the community. As such, when decisions are made by the board, the best interests of the homeowners are the guide stick upon which such decisions should be based. To that end, under Florida common-law, a board member’s duty to act in a manner which is in the best interests of the community is the bedrock of the creation of the fiduciary duty rule of law which encompasses the obligations of loyalty to the homeowners, diligence to adhere to the standard of reasonable care which a reasonable prudent director would exercise in the performance of his or her work, and the duty to act with loyalty and good faith to the homeowners. The term “fiduciary duty” is generally defined to mean the duty to act for someone else’s benefit while subordinating one’s personal interests to those of the other person. It is the highest standard of duty implied by law. The Florida legislature has incorporated the “fiduciary duty” rule in Florida’s Homeowners’ Association Condominium Acts, both of which expressly state “[t]he officers and directors of an association have a fiduciary relationship to the members who are served by the association.”

Closely related to the fiduciary duty rule, is the “business judgment rule”. Under the “business judgment rule” directors are presumed to have acted properly and in good faith, and are only called upon to account for their actions when they are shown to have engaged in fraud, bad faith or an abuse of discretion. If the business judgment rule applies, there is a “presumption” that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.

Florida’s Corporations Not for Profit Act has incorporated the principals underlying the “business judgment rule” by defining the general standards of directors. In section 617.0803(1), a director is required to discharge his or her duties as a director, including as a member of a committee, in good faith with the care of an ordinarily prudent person in like position would exercise under similar circumstances, and in a manner he or she reasonably believes to be in the best interests of the corporation. Thus, Florida courts have limited the ability of homeowner members of an association to bring claims for breach of fiduciary duty against officer or directors unless it can be shown that a director engaged in actual conduct amounting to fraud, self-dealing, or unjust enrichment. Negligent actions of association directors will not give rise to a claim for breach of fiduciary duty even if such negligence caused damage to the association. Furthermore, if officers or directors make decisions based in whole or in part on the advice of competent professionals, then such officers and director are not liable for any action taken or any failure to take action in reliance of such advice.

Please be mindful that volunteer members of a not for profit corporation are generally immune from personal liability for monetary damages to any person for any statement, vote, decision, or failure to take an action regarding organizational management or policy by an officer or directors unless the officer or director breached or failed to perform his or her duties as an officer or director, and the officer’s or director’s breach or failure to perform his or her duties: (a) constitutes a violation of criminal law, unless the officer or director had reasonable cause to believe his or her conduct was unlawful or had no reasonable cause to believe his or her conduct was unlawful; (b) relates to a transaction from which the officer or director derived an improper benefit, directly or indirectly; or (c) amounts to recklessness or an act or omission committed in bad faith or with malicious purpose in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

In conclusion, if you as a board member perform your work in a manner consistent with these legal principals, the primary focus of which is to do the best you can under the circumstances presented with an eye toward serving the members in good faith and in consideration of their best interests, then under the “business judgment rule” you will be presumed to have acted in good faith and, as such, in a manner consistent with the fulfillment of your fiduciary duties owed to the membership. Such decisions do not have to be the absolute best and correct decisions. They just have to be based on an informed review of the issues at hand, information gathering, an open discussion among the board members as part of the decision-making process, and the securing of the requisite majority vote of a quorum board members. Although reasonable minds may disagree with such decisions, under the “business judgment rule,” the officers and directors have discretion in the decision-making process, which board made decisions are reviewed deferentially by trial and appellate courts, and not with the objective of “second guessing” the board’s reasoned decision.

Good luck!

Ronald E. D’Anna, Esq., is Partner of the Law Firm Goede, Adamczyk, DeBoest & Cross. Ask questions about your issues for future columns, send your inquiry to: question@gadclaw.com. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.