QUESTION: A HOA Manager recently advised homeowners in a newsletter publication:
If a Director is contacted by a Member or resident on Association Business, the Director will inform the person that he/she must communicate with the Board as a whole through the general manager. This communication can be at a Board meeting, by request to be put on the agenda, or in writing. In an earlier conversation with a resident, the Manager advised that person her job was ‘to protect the board’. The digital ‘grapevine’ lit up and residents are concerned their communications with board members, who they elected, are being shut down and filtered by the Manager. What should be the organizational relationship of the manager to the board?
ANSWER: This practice is highly unethical, not in the best interest of the corporation and its members and may in fact violate the fiduciary responsibility of the board. This could have serious financial consequences to the homeowners. The managers and attorney are ‘contra-operatives’ (aka private contractors or ‘vendors’) not elected by the titleholders and, as such, have no fiduciary responsibility to the titleholders. In summary, each association board director is obligated to research issues without limits and reach his or her own fact based conclusions.
The question of the organizational relationship of the manager to the board was addressed in a 2014 publication by California attorneys Glassman and Vanitzian titled Homeowner Association must not let manager control it. In response to this comment from a homeowner:
I was elected to the board of directors because owners were fed up with a controlling manager. After election, the manager handed me a “board member tool kit,” which instructs how to join in lock step with other directors and not make waves. It espouses the importance of listening to industry “experts” such as property management companies and attorneys who, it says, know much more than board directors about how to run an association.
The attorney’s response was:
Regardless of who’s responsible for the so-called tool kit, it could be evidence of a board’s illegal delegation of its obligations and duties, and its use should be stopped immediately. Directors are to make decisions after due deliberation and independent investigation, not in accordance with an instructional kit. The independent decision this board must make is whether the manager or management company’s actions interfere with the board’s obligations and should be terminated. Using good common sense rarely fails any director, whereas an instruction to march in lock step with the majority runs contrary to the law. When a director fails to act reasonably and in a prudent manner, his or her breach of duty subjects owners to damages. A director cannot delegate his or her duties to anyone, and although a majority decision will govern how a board acts, you are not obligated to sit back and do or say nothing. You have a duty to speak honestly at meetings and with owners. Each director is responsible for reaching an independent, well-reasoned and logical decision without any external interference. Read more at http://wp.me/P2b6dW-35
In Hatch V. Emery, Arizona courts recognized a special fiduciary relationship between its board members and titleholders.
The directors of a nonprofit Corporation are in a fiduciary relationship with the members of that corporation, and there is a duty of fair dealing with that membership. A director’s position is one of trust, and he or she is frequently denominated a trustee and so held accountable in equity. The ordinary trust relationship of directors of a Corporation and members is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of the corporate business affairs and property and hence of the member’s property interest. Equity recognizes that members are the proprietors of the corporate interest and are ultimately the only beneficiaries thereof. Those interests are in virtue of the law entrusted through the Corporation to the directors and from that condition arises the trusteeship of the directors with the concomitant fiduciary relationship.
The directors of the Corporation are acting in a fiduciary capacity and are required to exercise their authority in the utmost good faith. They cannot rightly manipulate the affairs of the Corporation primarily with the design of securing benefits of the Corporation to one particular member or group of members, or of excluding another group from the exercise of its rights.
The right to govern comes from the consent of the governed…silence equates to consent.
Breach of Fiduciary Duty Lawsuit. 2012.
Indiana files lawsuit against three board members of The Harbours. Case is first filing under law allowing state to regulate homeowner associations.
“Board members have a fiduciary duty to serve in the interest of those they represent. Our office is committed to protecting homeowners and will continue to bring actions against violators who misuse their positions for personal gain.” A judge will determine what amount of restitution is due to the HOA from any actions that resulted in loss of dues and income to the HOA. According to the state’s lawsuit, the defendants should be barred from using the association’s funds for their legal defenses.
Numerous other lawsuits have cited breach of fiduciary duty in their legal arguments.
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