Suing the Board

Started by JimL6 • 9 replies • 1555 views

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JimL6 (Florida)
Posts: 45

Posted:

Hello,

If the members of a self managed association ever wanted to sue the board for damages to recover losses that resulted from the board's poor decisions, how could the members ever collect if they won? From where would the money come? Aren't the members the association? And isn't the board the elected representative of the association? Therefore, if the members of a self manages association (the association) sue the board (the association), isn't the association suing the association (itself)?

Jim

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Jim:

You pretty much hit the nail on the head yourself. It does not matter if you are self managed or have a PM when individuals sue the association to an extent they are suing themselves. Now in some circumstances there could be insurance coverage; however, many insurance policies potentially do not cover certain items if the board was not doing their job and possible violation of fiduciary duty. There is also the issue of the HOA insurance premium cost going up after a lawsuit, so everyone pays more down the road no matter who wins or loses. It is best if at all possible to avoid litigation.

What were the supposed damages caused?

Another question would potentially be where were the members when all this was happening? As members they also have a certain responsibility to insure the board is properly performing their job. Therefore, possibly is everyone to some extent at fault?

JohnO6 (Georgia)
Posts: 424

Posted:

What Janet said .. .. .. ..

With one possible exception.

If it's only "poor judgement" on the part of the Board members, it is indeed very likely to be the situation you describe in your original post.

The exception is only likely to be in the case where Board members acted in a premeditated, willful disregard of known facts or laws. In such a case it's almost certain that no insurance will cover the damages and it's also likely that such Board members may well be personally liable for their actions.

TimB4 (Tennessee)
Posts: 21,061

Posted:

Jim,

I concur with the other responses you received. You should also be aware that members of the Board are typically legally insulated from making bad decisions. They would not be insulated from knowingly breaking the law.

Tim

JimL6 (Florida)
Posts: 45

Posted:

Thank you, Janet and John.

The board and their attorney disregarded the requirement in the governing documents for a membership deciding vote for any proposed improvement to the common property (a 60% approval requirement) and for any proposed borrowing of funds (a simple majority approval requirement). The result was that the board arbitrarily spent millions of dollars, going into debt for that amount (borrowing the funds), in defiance of the will of the majority of the members. Their attitude has been that if the members don't like it, then they can either sue or recall the board. 57% of the members recalled the board, but the arbitrator upheld the board's refusal to certify the recall on the basis of a technicality. The technicality was that each recall ballot was three pages long, whereas each member's signature was not on all three pages. Although the members are free to attempt a recall of the board as often as they wish, the members did not attempt another recall. Suing is out of the question.

Jim

JimL6 (Florida)
Posts: 45

Posted:

Thanks you, Tim.

Jim

JimL6 (Florida)
Posts: 45

Posted:

That is, thank you, Tim.

Jim

PS. I wish there was an edit feature.

JimL6 (Florida)
Posts: 45

Posted:

If you are wondering why the members didn't just elect better directors in the subsequent elections, here's what happened.

Two weeks after the arbitrator upheld the board's refusal to certify the recall, the two directors favoring the board being subject to a membership deciding vote were elected to the board. However, only 66% of the members who voted to recall the board (57% of the total members) were reported by the board to have voted for the candidates who favored the board being subject to a membership deciding vote. The election was much closer than the recall (by 57% of the members) indicated that it should have been. What happened to 34% of that 57% of the total members who had just voted to recall the board? Had they changed their minds? Not likely.

In the election of directors in the following year, when the candidates who favored the board being subject to a membership deciding vote were expected (based on the recall one year earlier by 57% of the total members) to win the election and to give the directors who favored the board being subject to a membership deciding vote a majority on the board, only 50% of that 57% who voted one year earlier to recall the board were reported by the board to have voted for the candidates who favored the board being subject to a membership deciding vote. This time, the candidates who favored the board being subject to a membership deciding vote were not elected. What happened to 50% of that 57% of the total members who had voted to recall the board one year earlier? Had they changed their minds? Not likely.

This year, the candidates who were essentially the board's appointees ran unopposed in the election of directors except for one candidate who favored the board being subject to a membership deciding vote. Only 33% of that 57% of the total members who voted two years earlier to recall the board were reported by the board to have voted for the one candidate who favored the board being subject to a membership deciding vote. That candidate was not elected. What happened to 50% of that 57% of the total members who had voted to recall the board two years earlier? Had they changed their minds? Not likely.

The only way to know for sure whether they changed their minds or whether their votes were simply not counted in the elections would be to survey all of that 57% of the total members who voted two years ago to recall the board (there is a list of their names) to determine how they voted in the last three elections.

In all of this, the board and its attorney have maintained the attitude that if the members don't like what they're doing, then the members can either sue or recall the board. They seem very confident that the judge or arbitrator will see things their way.

Right now the members are going along to get along.

This association does not use a secret ballot. The mailed election ballot consists of an outer envelope and the signed election ballot that the outer envelope contains. The board requires the members to place their names and member numbers on the outside of the outer envelope. In my opinion, the only logical reason for that is that the board wants the names of the members on the outside of the outer envelopes so that the board can know (without opening the outer envelopes) which of the voting envelopes belong to the members on that list of members who participated in the recall two years ago.

Lesson to be learned: NEVER buy an HOA home.

Jim

JimL6 (Florida)
Posts: 45

Posted:

I said, "What happened to 50% of that 57% of the total members who had voted to recall the board two years earlier? Had they changed their minds? Not likely."

I meant to say, "What happened to 67% of that 57% of the total members who had voted to recall the board two years earlier? Had they changed their minds? Not likely."

Jim

JeanI (Louisiana)
Posts: 112

Posted:

The more I read on this website the more I understand why people do not want to live in community associations. Many of these problems appear to arise because people did not know or understand what they were buying into and developers weren't very upfront about what association living entailed. JMI

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