It is the time of year when community associations across the state are electing members to serve on their board of directors. When considering whether or not you would like to put your name in the hat as a candidate for a director seat, you should consider the responsibilities you will have to take on that include the fiduciary duties owed to the members of your association.
Directors and officers owe their community’s members a duty of care and a duty of loyalty to act in the best interests of their association by acting with loyalty, honesty, and in good faith. Directors and officers owe a duty to exercise reasonable business judgment and to use ordinary care and prudence in the operation of the association. Directors and officers should perform their activities in good faith and in the best interest of the association, exercising the care an ordinary person would use under similar circumstances.
That said, directors and officers are not required to be perfect. Decisions of the board are typically protected by the “business judgment rule.” The “business judgment rule” acts to preserve and protect a board’s decision so long as the board acted in a “reasonable” manner. In general, absent actual wrongdoing in the form of fraud, self-dealing, or unjust enrichment, corporate directors and officers cannot be held personally liable for corporate acts. The protection afforded by the business judgment rule fades away when an act crosses the line from “negligence” to “gross negligence”.
For example, breaches of these fiduciary duties would occur when a director receives compensation in the form of a service or money for the privilege of doing business with the director’s association or when a director discloses to a third party privileged information intended for the board of directors only. In the event of a breach of such fiduciary duty, there is little recourse against a director or officer who has committed the breach, except to file a lawsuit, which is often a costly endeavor.
While it is clear that directors and officers owe fiduciary duties to their association’s members, can a member allege a cause of action against one or more board members arguing that they breached their fiduciary duty owed to the association? The answer to this question is unequivocally, “no”. This was made clear as recently as August 30, 2017 in a recent Fourth District Court of Appeal decision in Collado v. Baroukh, et al., 42 Fla. L. Weekly D1917 (4th DCA Fla) citing Towerhouse Condo, Inc. v. Millan 475. So.2d 674 (Fla. 1985.
In regard to directors and officers immunity from civil liability, section 617.0834, Florida Statutes, provides in relevant part, that:
(1) An officer or director of a nonprofit organization …is not personally liable 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 director, unless:
(a) The officer or director breached or failed to perform his or her duties as an officer or director; and
(b) The officer’s or director’s breach of, or failure to perform, his or her duties constitutes:
1. A violation of the criminal law, …;
2. A transaction from which the officer or director derived an improper personal benefit, directly or indirectly; or
3. Recklessness or an act or omission that was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.
(2) For the purposes of this section, the term:
(a) “Recklessness” means the acting, or omission to act, in conscious disregard of a risk:
1. Known, or so obvious that it should have been known, to the officer or director; and
2. Known to the officer or director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission.
In the end, it is wise for board members and officers to act reasonably under the circumstances in order to provide for better insulation against any argument that a breach of fiduciary duty occurred.
Jeffrey Rembaum, Esq. of Kaye, Bender, Rembaum attorneys at law, legal practice consists of representation of condominium, homeowner, commercial and mobile home park associations, as well as exclusive country club communities and the developers who build them. He is a regular columnist for The Condo News, a biweekly publication and was inducted into the 2012, 2013 & 2014 Florida Super Lawyers. He can be reached at 561-241-4462.