Fiduciary Duties – Directors

The following is from Arizona case law (a.k.a. Common Law) and stands along side statutory law.

Fiduciary Duties, Directors

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.
Hatch v. Emery 1 Ariz.App. 142, 146; 400 P.2d 349, 353 (App. 1965)

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Breach of Fiduciary Duty Lawsuit. Aug 30, 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.

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6 Responses to Fiduciary Duties – Directors

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  3. admin says:

    Commentary
    •Posted Date: 01/22/2014
    I believe HOA’s have a fiduciary obligation to engage in REAL competitive bidding, especially for the (expensive) landscaping and management contracts. This means (a) establishing a clear set of contractual requirements, (b) seeking out and providing these requirements to no fewer than three potential companies (contractors); (c) identify key decision makers within the potential contractors, SIT DOWN WITH THEM PERSONALLY, review the requirements, and encourage them to submit bids; (d) decide, from among the acquired bids, which potential contractor is “best” for the HOA, comparing “apples to apples”. It’s not always true that the lowest cost bidder is best, but frequently it is. It’s my opinion that this common, professional process, routinely followed in business and industry, is rarely followed by HOA boards of directors.
    By: Neil Hendricks

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