fiduciary duty and committees

Our board allows our grounds committee to make the contractual decision on what grounds maintenance company to select. Whatever they say, the board says ok.

Is the grounds committee chairman and committee members bound by the good business judgment rule? Do committee members have the same fiduciary duty to the members as the board does?

The board may delegate authority to act to any committee it chooses to do so. The board remains responsible for whatever the committee does.

The Business Judgment Rule is a principle of common law that says, in effect, the courts will not get into second-guessing the actions taken by a corporation or its employees. For example, if your employer decided to lay you off to cut costs the Business Judgment Rule would bar you from claiming that they should have laid off some other person. Corporations, their boards, and their employees are generally give wide latitude as to how to run their enterprises and the courts will not interfere just because someone disagrees with an otherwise lawful decision, even if it is not the best decision.

When you asked about the Business Judgment Rule, you may have been thinking about a board member's qualified immunity from lawsuits. Directors are generally immune from damages if their actions are what a reasonable person in a similar situation might do. As far as I know, this immunity covers only board members and only when performing as a board member. If a board member operates the association's snow plow, for example, he is not acting as a director and would not be immune from lawsuit for running into your car. The immunity is usually granted by statute and cannot be delegated.

Therefore, your grounds committee members would have no immunity from lawsuit but any lawful decision they make would be protected by the Business Judgment Rule.

Ours posts crossed, Larry. I am sorry for typing "your" twice when I meant "you."

Courts - in considering the BJR, the courts will put the burden of proof on the complaining party. Also, under the BJR, your board would be allowed to rely on the committee's report/expertise. In your example, you would have to prove that the board rubber stamped the committee's decision - even if it actually happened that way, you'll never be able to prone it.

Insurance - policies may differ, but our d&o insurance would cover any non-compensated committee member even if not a director or officer. The reason is straightforward enough. If anyone is going to sue a committee member, she will typically sue everyone - including directors and officers. Since the insurance company will certainly be defending the directors and officers, it's not that much more involved to also defend the committee members. Also, insurance companies try to get all of the claims settled.before they make a payout - even when they don't represent all the defendants.

Exactly Crystal.

A quick recap of why I posed the question: Our maintenance contract with "Company A" expired March 30, 2015 and we've employed them for several years. We were having a few issues with them in the past, and as usual I was the only one on the grounds committee voicing any concern when they did not deliver everything in our contract with them, particularly as it pertains to the number of times they came out to mow.

One member of the grounds committee employed Company A to maintain their commercial properties and usually defended all of their mishaps with phrases like "they are nice people" and " they would not deliberately try to screw us". I agreed with these comments, but to me this was a business relationship and Company A was not delivering on our contract with them.

In the summer of 2013 our members were unhappy with the frequency of grass mowing in our common areas, which was bimonthly. The grass was simply being allowed to grow too high between each mowing. We discussed this as a grounds committee (of course through email) and our chairman went to Company A and asked them what was necessary to mow weekly during the growing season. Company A came back with a request for $15,000 more dollars. Several grounds committee members wanted to ask the board for the additional money to make the homeowners happy and I understood this, but my position was that our contract with Company A called for them to mow our grass several times during the months of Nov, Dec, Jan, and Feb...and they had never mowed during these months ever. Why, because it is winter and the grass doesn't need to be mowed. So my position was since we are not receiving those mowing trips, simply ask Company A to transfer them to the summer months without charging us additional bacon. The grounds committee liked this idea, but not the chairman, but he went along with it. After talking to Company A he came back and told us they would be happy to modify the contract for the following year, but incredibly all through 2014 nothing changed. We still only got bimonthly mowings and when I questioned the committee chairman on this through email he completely ignored me. The grounds committee never said a word about it after that.

In the fall of 2014 our board president apparently directed the property manager to distribute an RFP for new grounds maintenance proposals because our contract was going to expire the following March. This was without any grounds committee input (or board knowledge) into what the RFP should include. When the bids came back it we actually had a noticed grounds committee meeting to go over them. It was the best attended meeting we ever had.

Unfortunately, the off the shelf RFP did not meet our needs because it was outdated and only accounted for 2/3 of the neighborhood. We could not use any bid at all. I volunteered to write the RFP myself within a week and then it was redistributed by our property manager. Within a few weeks we received so very good bids, but when the grounds committee chairman distributed them to us to review he told us "he" was throwing out some and that "he" liked Company A...because Company A was now going to mow our grass every week in the growing season and not charge us any additional money. I thought another company had a much better proposal and replied to the committee through email that I was not going to vote on this through email because it involved too much money, over half of our budget.

Of course, I was completely ignored. No meeting was called, and the grounds committee informed us that he was recommending to the board Company A.

At the board meeting where this recommendation was made (March 2015) I was actually harassed by the ground committee chairman and his wife as I started to explain the benefits of another Company. The board president, who hates my guts, had no problem with this. It is not the first time he has allowed this type of behavior from others in the room toward me.

The ground committee chairman's only comment as to why we should keep Company A was that "they mow every week, it is a no brainer".

I record every single board meeting. If you heard these recordings I think you would be astonished.

The board decided to approve Company A but with the condition that the grounds committee be given more time to review the proposals to make an informed decision. (the board never said one word about any of the proposals themselves and appeared to know nothing about them) A few weeks later as I waited for a grounds committee meeting to be called where I would hopefully be able to discuss the benefits of Company B's proposal with the committee, especially the almost $15,000 in savings to the association, and the addition of services we had badly needed in the past, I finally emailed the board and grounds committee chairman asking what was going on. I was told, through email, that the grounds committee chairman had asked the other grounds committee members to vote on the proposals through email (they admitted to purposely leaving me out because I said I would not vote on this through email). I was told a majority had voted on Company A and that that is all that was needed.

(Yes I know that unanimous written consent is required outside of a meeting, but my HOA could care less)

The next board meeting was called on the one day of the week I could not attend, but I had a friend record the meeting for me. No mention of any of this email voting on a grounds maintenance company ever came up. All that was said was a new contract with Company A has been signed.

Tim, what should I do next??