i don't get tough with anybody, my lawyer does

37 Pages·2014·1.99 MB·English

by  Natasha Sanders

2014 Community Association Legal Forum

I DON’T GET TOUGH WITH ANYBODY, MY LAWYER DOES

Jason LoMonaco
P: [phone]
E: [email protected]

FIDUCIARY DUTY
- Duty to act solely in another party's interests
- Fiduciaries may not profit from their relationship with their principals without their
consent
- Duty to avoid any conflicts of interest.
- Strictest duty of care recognized by the US legal system.

Fiduciary Duty of Board Members

- In Georgia the individual members of the board of directors of a nonprofit corporation owe
a fiduciary duty to the corporation, and in some instances to individual members. (i.e.
when breach of duty owed to the corporation causes unique damage to an individual
member).
- The corporation does not owe a fiduciary duty to the members

Main aspects of the Fiduciary Duty:

1) Loyalty
2) Good Faith
3) Confidentiality

 These are really just different ways of saying the board member must always be
faithful/loyal to the interests of the corporation (the Association).

 It’s not so much what you decide, but how you go about deciding and whose interests you
serve.

©2014 Weissman, Nowack, Curry & Wilco, P.C. All rights reserved.
Loyalty
- Act in interests of the Association (the Membership as a whole)
- Avoid or disclose formal conflicts of Interest
- Avoid or disclose personal issues or interests (monetary or otherwise)
- Never usurp an Association opportunity or use your position for personal gain
- Enforce covenants fairly and treat similar situations similarly. Not necessarily uniformly and
for all time.

Confidentiality

- Protect sensitive/private information
- Preserve Attorney-Client Privilege
- Protect financial and property information not otherwise required to be disclosed
- Be discrete

“Good Faith”

- Exercise honest judgment.
- Don’t be “arbitrary and capricious”
- Set aside personal prejudices.
- Set aside personal preferences, except for certain ACC issues that are inherently
“aesthetic” (but don’t focus on what you prefer, always focus on what you think is best for
the community as a whole)

Board Member Non-Fiduciary Duties

 Directors and Officers have the duties set forth in the Nonprofit Code and the By-Laws. (i.e.
the Secretary is responsible for the minutes, the Treasure keeps the financials and the
President presides over meetings, the “Board” prepares a budget etc.)

These are general statutory and contractual duties (not fiduciary duties) owed to the
Association.

Your Fiduciary Duty is to act in good faith and in the interests of the Association, and with
appropriate confidentiality, when fulfilling specific statutory or contractual duties.

Other Non-Fiduciary and Non-Board Member Duties?

- Enforce the Covenants
- Maintain common property/elements
- Pay Association expenses

 These are duties of the Association as a corporation, not individual members of the board.
©2014 Weissman, Nowack, Curry & Wilco, P.C. All rights reserved.
 But, board members have the fiduciary duty to exercise good faith judgment in the
interests of the Association when deciding whether and how to pursue enforce a violation,
maintain the common property and paying expenses/debts.

Board Members Behaving Badly

- Unilaterally approving modifications
- Taking enforcement into their own hands
- Harassing Owners
- Disclosing sensitive or privileged information
- Advancing their own self interests
- Conflicts of interest
- Advising Members against the Association

Reduce the Risk: Educate the Members

1) Provide covenants, By-Laws, ACC Guidelines, Rules and policies at closing or as
welcoming gift.
 Guidelines, Rules, Policies, Handbook etc. should make clear what individual
members of the board (committees) can and cannot do/approve.
2) E-blast members periodically to remind them of procedures, policies and
board/committee member authority.
3) Newsletter and Website reminders.
4) Annual meeting briefing (note it in the minutes).
5) Communicate directly with person the “rogue board member” dealt with to set
record strait on board member authority and standards of conduct.

Reduce the Risk: Reprimand the Rogue

1) Set record straight on board member authority and standards of conduct amongst the
board members.
2) Written reprimand
3) Voluntary Recusal (i.e. ask the Rogue to recuse from the issue)
4) Use discretion and keep the problems confidential, at least at first.

Reduce the Risk: Remove the Rogue But Consult with Counsel First!

1) If Allowed by the By-Laws:
2) Remove from committee
3) Remove from “office”
4) Appoint special committee to handle issue
5) Remove from meeting
©2014 Weissman, Nowack, Curry & Wilco, P.C. All rights reserved.
a. What if the By-Laws don’t allow this? (Then only as a last resort, only for privilege or
“extreme prejudice” and only on advice of counsel)
Special Meeting of members to Remove from Board
6) Petition Court to Remove from Board or for an injunction

Association Duty: Adequate Insurance

Policies Every Association Should Have:

1) 1st Party Property Casualty
2) 3rd Party General Liability
3) 3rd Party Directors and Officers Liability
4) 1st Party Crime/Employee Dishonesty

The Condominium Act Requires

1) Property Casualty Policy including “fire and extended coverage” for the “full insurable
replacement cost. . . of all buildings and structures within the condominium” The
Condominium Act does not require insurance for flood/water damage

2) Commercial General Liability Policy for “bodily injury & property damage” of at least $1
Million for a single occurrence and $2 Million aggregate. (add coverage for board, officers
agents employees and unit owenrs and those entitled to occupy)

3) Any additional types and amounts of insurance coverage specified in the condominium
instruments.
- Some older documents require insurance for flood/water damage

POAA and HOA’s
No insurance requirement by Law.

However you must obtain whatever insurance is required by the governing documents. Old
Documents will be outdated regarding any minimum coverage specified, so consult with a
Community Association insurance professional on what amounts are sufficient for your
community.

Directors & Officers Insurance
- Insurance for “wrongful acts” and “decisions” of the Association or Board that may be
challenged in a lawsuit.
- It doesn’t matter that the Condo Act, the POAA or your documents do not require D&O.
You need it!
- If you don’t have D&O, GET IT TODAY!

©2014 Weissman, Nowack, Curry & Wilco, P.C. All rights reserved.
Adequate D&O Insurance: Make Sure these are included in your D&O coverage!
1) Directors and officer (and spouses)
2) Property Manager (and Management Company)
3) Committee Members/Volunteers
4) Agents & Employees
5) Defense of FHA and other “Discrimination” Claims
6) Defense of “Non Monetary” Claims
7) Defense of Contract Claims
8) Be sure to ask, these may be a separate “rider”

Directors & Officers Insurance Companies

The Best D&O Policies:
- Travelers
- Great American Insurance Co.
- CAN
- Great Western Insurance Co.
- CAU (Community Association Underwriters of America)
- USLI (United States Liability Insurance)

No Directors & Officers Insurance Policies will cover a claim against the board for their failure to
obtain adequate insurance (some may pay to defend the lawsuit).

No do-over, so get it right the first time.

©2014 Weissman, Nowack, Curry & Wilco, P.C. All rights reserved.
2014 C OMMUN IT Y A SSOC IAT ION LE GAL F ORUM
I Don’t Get Tough With Anybody,
My Lawyer Does.
Chinatown (1974)
Starring: Jason LoMonaco
FIDUCIARY DUTY
ROGUE BOARD MEMBERS &
ADEQUATE INSURANCE
FIDUCIARY DUTY
• A fiduciary duty is a legal duty to act solely in
another party's interests. . . Fiduciaries may
not profit from their relationship with their
principals without their consent. . . duty to
avoid any conflicts of interest. A fiduciary duty
is the strictest duty of care recognized by the
US legal system.
Fiduciary Duty of Board Members
• In Georgia the individual members of the board of
directors of a nonprofit corporation owe a fiduciary
duty to the corporation, and in some instances to
individual members. (i.e. when breach of duty owed
to the corporation causes unique damage to an
individual member).
• The corporation does not owe a fiduciary duty to the
members
FIDUCIARY OF DUTY
• What exactly is a Fiduciary Duty?
• What does it require?
• What is meant by “Fiduciary?”
• Do we need a Latin Dictionary at board
meetings?