Can I be sued for Board of Directors decisions?

I am on the our HOA's Board of Directors. After a very long out of control homeowners semi-annual meeting, a group of homeowners ask each of us board members individually if we would resign do to "evidence" that they have on the Board's decision to lock the amenity center and possible misuse of funds. As far as I am aware of, none of this is true. When asked if I would resign, I stated no. When asked if I was prepared to be named individually with a class action lawsuit.. I stated "Sure." I stated this only because I know I did nothing wrong. Along with the other board members. We have only made decisions based on advice from our management company. I can not afford to hire an attorney and I don't feel I should resign. Can I be sued personally for our Board's decisions?

Let me tell you one more thing...we are in litigation with this group's leader. I believe this is an attempt to retaliate.

I welcome any and all advice on this matter.

Thank you so much.

Brian,
Joe is right as usual and what is done is done, but it was a mistake to field an accussatory question session like you related. So, try and undo the damage. Certainly you know if you locked the community center or not and had some justification, likewise the use or misuse of funds. The member who asked this kind of question is out of order and told if he wants to persue this subject it will be done by contacting the Boards lawyer.

It is hard to give much useful advice on this forum for a situation that is under litigation, especially when you are asking us to decide if the Board is quilty of some misdeeds, Joe answered your question about suing.
You sound tentative about the prior actions of the Board. Better get this straightened out with board and lawyer. Just don't allow this kind of talk to take place at an open meeting. I am surprised your attorney didn't tell you to direct this stuff to him in a written letter.

Also, I suspect it would be wise to not post anything on this site that is involved in a ongoing legal suit.

Thank you all very much for your input and advice. I have never been on in a board of directors position before. This was my first time along with our whole association. We just got our community handed over to us approx. 18 months ago. We are still learning. I will contact our attorney and insurance company.

Thank you so much.

Whoop's !!!!!!!!!
Cross out the Brian from South Carolina, I am the one from SC.
I see Brian is letting loose of a little more info. Harold may be dead center about Management Co.

A lot of issues popped up here and I would like to respond to a few of them:

First, your CC&R's are a contract, backed by contract law, not, at best, guidelines. They have legal standing. However, like any contract, the terms can be changed when the parties (in this case the owners) agree to the changes. Until that occurs, the CC&R's should be followed, as the terms of any contract should. When owners feel that the CC&R's are guidelines, that often leads to the assumption that they don't have to be followed. Way too much litigation is the end product of that assumption.

Second, the post gave very little information, and since the matter is in litigation, shouldn't, as RobertR1 pointed out. As a member of the board, Brian should be in a position to obtain all relevant information and to make an informed decision about the need for this litigation. From the tenor of his post, I don't think this is the case, so he needs to develop the questions to the management company, attorney and board that will provide him with the information he needs to make that decision. Once he has that, the decision to continue the suit or seek other means of settling it will be up to the board and his vote on the matter.

Third, the attorney will help decide whether the lawsuit by the owner is a SLAPP suit (retaliatory, designed to force you to abandon your suit) or not and how to handle it. When you have a legal issue, you talk to the experts about it, a lawyer who knows community association law. One of the problems I have with boards (and this forum reflects it) is that they are constantly looking for free legal advice. Unfortunately, it's usually worth exactly what you pay for it. You're in litigation, threatened with more litigation, just make sure your attorney knows what he or she is doing. If they're a local attorney, who's main experience is with closings on home sales, you might want to ask even more questions, and if you don't get solid answers, you may want to go back to square one.

Fourth, in absence of more expert knowledge, the reason an association hires professionals like managers, attorneys and CPA's is to give them advice they need to make an informed decision. To ignore their advice puts a board at even greater risk, should the matter end up in court. All too often I've seen board members literally shredded on the witness stand, for failing to follow the advice of the experts they retained. No, you don't always have to follow their advice, and yes, you should ask them as many questions as you need to, to feel comfortable making a decision. But if you choose to ignore or go against it, make sure the reasoning behind it is solid, and as a little mental check, ask yourself "Would I feel confident, sitting on a witness stand, that I could defend it?"

Fifth, some attorneys still feel uncomfortable with mediation, and not just because they might miss out on a bigger payday. Mediators tend to try and find a middle ground in a dispute, and the middle ground may not always be the best answer. The association may need a clear "one way or the other" decision, if for no other reason than to help provide them guidance in future similar issues.

Last, Robert is right about communication being the major problem. The lack of, or poor use of, communication leads to most of the problems associations have. Here are a few things to remember:

- When there is a lack of any communication, bad information will take its place.

- Good information usually will overcome bad information

- The more informed the board, the better the chance of good decisions - the more informed the owners, the better the chance they will accept those decisions

Last, and this is important - almost every set of association documents contains a clause indemnifying the board for any legal costs incurred arising out of their actions as a board member (with certain exceptions i.e. gross negligence and a few others). However, this clause does not necessarily protect an individual as much as they might expect. First, if you are sued, the board may not decide to cover your legal costs until a decision has been reached (just in case you're found grossly negligent) and you would find yourself fronting all of those defense costs for an unknown period of time. Even if you win the case, the board still might decide not to re-imburse you, forcing you to sue them and front all of those legal costs. If you're on the board, YOU HAVE TO KNOW THE TERMS AND CONDITIONS OF YOUR DIRECTORS & OFFICERS LIABILITY POLICY!!!!! IHG Insurance (a sponsor of this forum to the left) has an excellent article with the questions to ask:

http://www.ihginsurance.com/riskmgt/articles/show_article.php?article_id=5

Simply put, if you can't answer the questions this article asks, get your insurance agent in front of you at the next board meeting and make sure your policy actually covers all of the issues to your satisfaction. Honestly, if they don't, change it or get off the board.

Joe

Joe

Your Bylaws should have indemification clause that shoul read something like this:

The members of the Board of Directors shall not be liable to the Owners for any mistake of judgment, negligence, or otherwise except for their own individual willful misconduct or bad faith. The Owners shall indemify and hold harmless each of the members of the board against all contractural liability to others arising out of contracts made by the Board on behalf of the Association unless any such contracrs shall have been made in bad faith or contrary to the provisions of the Declaration or these Bylaws. It is intended that the members of the board shall have no personal liability with respect to any contract made by them on behalf of the Association, except to the extent that they are Owner(s).

The indemnification provided herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any statute, bylaw, agreement, vote of Members or disinterested directors or otherwise, both as to action in his or her offical capacity and as to action in another capacity while holding such office, and shall continue as to a person who has executors and administrators of such person.

The Association may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of another coporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in such capacity, or arising out of his or her status as such, whether or not the Association would have the power to indemnify him or her aganist such liability.

The Association's indemnity of any such person who is or was a director, officer, employee or agent of the association, or is or was serving at the request of the association.

In Brief; as long as the board acts as a whole, in good faith, seeks professional advice, opinion and makes the best educated decisions the D&O poicly should indemnify him or her. However should a rouge board member go off on his/her own make decisions without the entire BOD can be held liable for his/her actions, personally.

Sorry Robert, the CC&R's are a contract. When you purchase a lot/unit in an association, you agree to abide by the CC&R's, forming a contract between you and the association, (whether you are aware of it or not). In one of the summaries of the landmark Twin Rivers decision: "The court rejected the central argument in the plaintiffs’ suit – that in establishing and enforcing rules for the community, the association was “acting as a municipality.” Equally significant, the court recognized that while individual constitutional rights are fundamental, “they are not absolute.” There are circumstances, the court noted, “where citizens may waive or otherwise curtail their rights.”

Those circumstances exist in a common interest ownership community, where, the court said, owners enter into a contractual relationship with the association in which they agree voluntarily to abide by its rules. “The mutual benefit and reciprocal nature of those rules and regulations and their enforcement is essential to the fundamental nature of the communal arrangement that Twin Rivers residents enjoy,” Justice Wallace explained."

The state will enforce the contract through civil actions, not state actions.

Joe

Gloria, I like this language very much and wish it was included somewhere in our documents. I am curious why you have this in Bylaws rather than Declaration of CC&Rs?

Some of the info above provided by Joe has had me on the phone with our insurance agent checking our D&O coverage. Great stuff here!

Thanks,
Tom

BarbaraM7: With this post and your recent other post re architectural issues, does your association have a process in place for submission of architectural requests followed up by approval or denial? Don't your Bylaws refer to the process for this?

Michele,
I agree is issue is probably semantics, and I will let your opinion render justice to all, if Joe agrees. It is certainly clear the in the wrong handle damage can be done and in the right hands the, peace will prevail.

Thank you for your interest and good advice.

Yes, we have a Amended Declaration of Covenents, Conditions, and Restrictions that state the following under Article V - Architectural Control: ...nor shall any exterior addition to or chage or alteration therein be made until the plans and specifications showing the nature, kind, shape, height, material, and location of the same shall have been submitted to and approved in writing as to harmony of external design and location in relation to surrounding structures and topography by XXXXXXXX and XXXXX who shall serve as the Architectural Control Committee (ACC).

Now the XXXXX's are the names of the original builders, and this document has never been updated to reflect that all powers were turned over to the Board of Directors (actual residents) since 1989. I believe it is still relevant. In the past if someone has done something to the exterior of their home without prior approval from the ACC, they have had to restore it to it's original appearance if it is found unacceptable, such as the old lady with the different type of window above her front door, or the guy who painted his foundation red, or the man who put on a pinkish-red roof instead of charcoal, etc. I just feel that if other people have had to adhere to the rules or be brought in for due process hearings and/or fined, that the boyfriend of the Board Member should be given the same treatment.