JUDGE RULES NO INDEMNIFICATION IN NM

This is unbelievable, and I am passing on the letter written by a woman in New Mexico. It makes you wonder whether anyone is safe. She stated that their D&O insurance company has had the claim since Aug 2007, and doesn't know what to do. The judge apparently ignored the HOA's bylaws as well as state law, and made a declaratory judgment. He further allowed the builder, who still has 125 houses to build, to exercise his 125 votes, in violation of the bylaws that specify he cannot vote.

To the lawyers out there, does anyone know whether a declaratory judgment can be appealed and overruled? Can a judge just totally ignore an association's bylaws and state statutes? The writer of the letter told me that the old board members who were thrown out have received certified notices in the past week of liens on their property to the tune of $17,000+. The new president of the splinter group has asked the membership (with no response to date, as she has not done it properly) whether the Association should pay the liens or make the past board members pay out of their pockets, even though the HOA has more than enough money to cover them. The section in the NM state statutes is clear on indemnification. Further, the splinter group's election was in violation of their bylaws. The case is #D-619-CV-200700432 in NM. The writer also stated that she heard some of the previous board members had checked with their own umbrella policies and were told they are not covered there, either. (Makes you wonder.)

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A RECENT decision [Aug 22] handed down by the state District Court [Deming, NM] really gives me great concern as a local citizen who freely volunteers my retirement time to serve on nonprofit boards in Deming.
This past year, there was a power struggle between two factions in the Country Club Estates Homeowners Association. A group of the association's members challenged the current board and their continued right to serve. The board members did the prudent thing by contacting legal counsel who recommended filing for a declaratory judgment to rule on the contentious issues.
District Judge J.C. Robinson handed down his ruling along with awarding damages resulting from the costs of the proceedings against the board members from their own personal assets, thus rendering null and void (state law regarding nonprofits and indemnification of directors).
I was not aware judges had this authority over state statutes and now realize — as should all citizens of Deming and for that matter the state — the need to be very cautious when serving on nonprofit boards. A precedent appears to have been legally rendered in a court of law that eliminates the “so-called immunity” board members were formerly provided by the state statutes.
If your current non-profit organization has directors and officers liability coverage, do not assume as a board member you automatically have protection while volunteering. Your personal homeowner and umbrella policies may not provide fall-back coverage, thus leaving your personal assets at risk just as this Country Club Estates Homeowners Association board of directors discovered.
This is truly a sad situation and certainly gives me great concern, as it should all members who volunteer their time to sit on the many non-profit boards.
LINDA L. DRILLING
Deming, NM
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Ah yes, judges. a power unto themselves. THey need no legislature or executive branch, they can make and enforce laws on their own.

Having been in a courtroom when a judge, in dead seriousness, said "I don't care WHAT the law says, in this court, I decide what to do", i am surprised at nothing a judge does or says. In effect, there are no laws that a judge must follow at any time, they are free to follow them or not in their court.

and this one, chose not.

George,
I agree we tend to jump the gun on this site at times. But I see the problem as being caused by the poster never, ever, seems to want to tell both sides. Human Nature or get mad and only consider the questions you want to answer so you can feel better about it.
Also, I have noted in your posts you seem to be able to transverse the internet better than, certainly I. So, I think you are right, I understand a little about writing out your personal complaints and I appreciate how difficult it is at times to actually give advice that makes a difference, because you don't and won't know the whole story.

This particular thread is a good example. On the surface the judge is the bad guy because he fits the picture of what we see in many court rooms. But the thread is not about blaming the judge, it's about what to do. So I thnk the advice of the others posters are valid also. They are saying, I believe; "Yes you should know what is going on and you should pay your money to find out. I have seen this kind of thing happen before."

Here is a pertinent bit of information from an Illinois attorney that may shed some informative light on this thread (emphasis added):

"The truth is, that board members are often named personally in suits against associations. The good news is that unless the conduct involves intentional or willful misconduct, the insurance company will pick up the defense of directors acting within the scope of their authority as well as the association.

"It has been the law in Illinois that the directors of a corporation shall exercise a duty of care required of a fiduciary to its shareholders (and in the condominium act, to the unit owners)*.

"Section 108.60 and 108.70 of the Illinois General Not for Profit Corporation Act address the parameters of director conflict of interest and limited liability of directors and officers. This act sets an even higher bar for allegations of breach of duty . . . to be . . . willful or wanton conduct.

"Thus, the law even protects a director from being stupid or acting negligent. The clear-cut breach is intentional misconduct; conduct which may shock the conscience of the court."
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*Note that the fiduciary duty is to the owners, not to the association (ed. comment).

http://www.dailyherald.com/story/?id=120540

George,
Interesting observation about the fiduciary responsibility of the board to to the owners and not the association. I thought I understood this when I read it, now I am not so sure. Wouldn't it be true to expect that any violation of the fiduciary role might result in personal payment of the individual Board members, to the association. Wouldn't it then be true that any monies collected would be for the benefit of the association.
Or would it depend on who filed the suit? Help me out here George.

Kirk,
Your logic is hard to refute for someone who has been at this sort of thing for a while. In fact, I am leaning now towards the only reason to sue other than criminal misconduct is to sue to help the association. It may be that a Board would benefit from a letter directed to specific facts. if that letter came from an attorney and not a Home Owner. Just a new thought I have been mulling over and will post again about it if it bears fruit. Think about the idea Kirk and give me some thoughts. $300 may be well spent in some cases.

Lee, your example illustrates why the Board members need to act in good faith, make sure there is an indemnification clause in their Articles of Incorporation, and an indemnification clause in their By-laws just in case their D&O insurance won't cover their expenses. Use all of the above safeguards in these litigious times with some crazy judges.

George,

While I agree with the principal, those in a power struggle just don't seem too intent on seeking a lower cost means of resolution. Let's face it, they could have faced an election and the cost would have been $0 in court fees.

If you face such a thing, then why not seek another election that both sides have equal footing in? Let the membership decide this thing. I honestly believe that if faced with a petition for recall I will not spend much time "checking it out." My inclination is to call a special meeting and have it out in open forum of debate and election.

Don't get me wrong, I am sure that my feelings will be hurt. But it just isn't worth enriching the lawyers to stay in power. I didn't run for power. I ran because I honestly think I can make a positive impact on my community. If I am more a source of contention then solution then it will be time for me to focus my energy elsewhere. But I want to leave office knowing that I did what I believed to be best for my association.

And now it gets more clear. I had done a little poking but quite honestly when I wasn't rewarded with details quickly moved on from trying to find "the rest of the story."

I agree on the idea that one person's power struggle is another person's disputed election. That is why it would be best to move quickly to election. And bring both sides tot he table to figure out who to oversee the election. But all too often it seems that the side in power didn't get involved in the election. Rarely does it come to an actual fight over what the ballots said. I know it happens, but not that often.

MaryA,
In this regard and I speak of my situation. I live on an island, under an Island wide POA)compilsary. Mu condo is seperate as are other associations on the island. We have 65 units and a five man board. Now if you are away from our complex (where you are covered by both the POA and Condo covenants) you are still inder POA restrictions. We have large numbers of Renters at seasonal times and always some significante numbers at all times. Renters, etc and owners on the island are covered by the POA. They have the power in their covenants to fine for violations. The fines were very small and people would just pay the fine and I suppose call it entertainment. Now the fine will get your attention so the POA now has an Appeals Board to hear individuals wanting to contest, If they refuse to pay the fine they are given county citations and the offenders have to go to court.

Has anyone had any experioence with an appeals board comprised of residents in a smaller complex or say, condominiums? If written into the covenants and the fines listed for specific violation this may work. If they refuse to abide by the appeals ruling, then their recourse would be hearing before the Board or go legal. There would be many cases that an appeals board may want to arbritrate the fines and make everyone happy.

Some here have suggested that associations are like cities and had judicial powers along with all the authority of cities and towns. Associations may have to deal with all this but their authority is a far cry from a judge and jury or Police court.

Let's take the discussion about appeals to a new thread:
"Mediation/Arbitration/Appeals Process."

Robert had a good idea.