Community association officers and directors have a fiduciary relationship to the owners of homes or units in their community. Typically, this relationship is understood as officers and directors having the obligation to act in the best interests of the association and to refrain from obtaining or accepting personal benefits at the expense of the association. In practice, this relationship is complicated, can be misunderstood, and is sometimes raised by community members who seek to complain and/or make accusations arising from board decisions with which they disagree.
As a starting place, Florida law has long provided that fraud, criminal activity, self-dealing, and unjust enrichment are examples of breaches of the fiduciary relationship. In contrast, ordinary negligence is generally understood not to constitute a breach of the fiduciary relationship, and most association governing documents provide that officers and directors will be indemnified by their association from personal liabilities arising from ordinary negligence.
Moreover, in the vast majority of community associations, nearly all maintenance and management decisions related to common areas, common elements, association property, and association operations are made by the board of directors. These decisions are almost always protected by the “business judgment rule”—a doctrine recognized by Florida courts that keeps judges from second guessing these decisions. The “rule” provides that when board members exercise discretion (i.e., make business choices for the association) within their authority and do so in good faith, a court must defer to the board members’ presumed expertise.
Thus, an owner is without grounds to pursue a claim for breach of the fiduciary relationship if the evidence of the alleged breach is limited to maintenance and/or management decisions made by board members who acted within their authority, in good faith, and without fraud, criminal activity, self-dealing, or unjust enrichment. Importantly, even if hindsight reveals that a board’s business decision turns out to be a bad one, that outcome is insufficient alone to overcome the protections of the “rule”.
Also, courts have recognized that limiting the exposure of officers and directors to personal liability is important and necessary to maintain a steady flow of willing volunteers to serve on community association boards. This signals that courts are aware that making it too easy for owners to state a claim for breach of the fiduciary relationship would have a chilling effect on associations being able to attract volunteers.
Nevertheless, criticisms by antagonistic owners that incorporate allegations that the fiduciary relationship has been breached are serious matters that may have serious consequences. As such, they warrant vetting by the Association’s legal counsel at the time they are received.
Recent Comments