Board members in community associations owe fiduciary duties to the association and the membership. Fiduciary duties are duties above and beyond the normal obligations which a person owes to the public and to fellow citizens. This means that board members must act and make decisions which are in the best interest of the community, even at the expense of the board member’s individual interests. Just because you’re a volunteer, this duty is not diminished.
Under the scope of fiduciary duties, the law imposes two duties: the duty of loyalty and the duty of care. The duty of loyalty requires board members to avoid self-dealing during the course of decision making. The duty of care means that a board member must consider the best interests of the association when acting as a board member.
Fortunately, courts have adopted the “business judgment rule”. This rule states that the court will not second guess a decision of the board or hold a board member personally liable. The rule will apply so long as the board members fulfilled their duty of care and duty of loyalty. Thus, if an owner sues the board over a decision the court will apply the business judgment rule and insulate individual board members from personal liability.
A Washington State Court of Appeals Case applied the business judgment rule after an owner sued the board and association for alleged maintenance issues. The board undertook an investigation and even hired different experts to determine the cause of a water leak into the owner’s unit. Nevertheless, the owner sued the board. The Court refused to hold the board members liable:
Because they are given this wide latitude, the law will not hold directors liable for honest errors, for mistakes of judgment, when they act without corrupt motive and in good faith, that is, for mistakes which may properly be classified under the head of honest mistakes. And that is true even though the errors may be so gross that they may demonstrate the unfitness of the directors to manage the corporate affairs. This rule is commonly referred to as the "business judgment rule."
Keep in mind that the business judgment rules requires that board members:
1. Are informed about association business and affairs;
2. Attend and participate in meetings;
3. Are knowledgable about the governing documents of the association; and
4. Seek outside help (accountants, lawyers, or other experts) when necessary.
With any major decision each board member should ask if they have done everything necessary in order for the business judgment rule to apply.