Board Forum March 2011 Fiduciary Duty 101


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A training presentation for board directors about fiduciary duty. With national cases.

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Board Forum March 2011 Fiduciary Duty 101

  1. 1. Jeremy O. Evans
  2. 2. Fiduciary Duty 101: A Primer for Directors Jeremy O. Evans March 2011Jeremy O. Evans
  3. 3. What is a Fiduciary?
  4. 4. What is a Fiduciary?o Fiduciary, [Noun] A person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. Black’s Law Dictionary310311joe
  5. 5. What is a Fiduciary?o “A fiduciary relation does not depend upon some technical relation created by, or defined in, law. It may exist under a variety of circumstances, and does exist in cases where there has been a special confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with due regard to the interests of the one reposing the confidence.”o Dugan v. First National Bank of Wichita, 227 Kan. 201, 606 P.2d 1009 (1980)Jeremy O. Evans
  6. 6. Who is a fiduciary of whom? o Association: of members o Board: of members o Board: of Association o Manager? o Realtors? o Bankers? o Other employees?310311joe
  7. 7. What Duties Does a Fiduciary Owe?1. Duty of Care2. Duty of Loyalty3. Duty of Discretion310311joe
  8. 8. #1 – Duty of Care– Act prudently with the care of an ordinary prudent person;– Act in the best interests of the Association; and– To do so in Good Faith • Business Judgment Rule5/20/2010 joe
  9. 9. #2 – Duty of Undivided Loyaltyo Conflicts of Interest – Disclosure – Abstention from Voting / Making Decisionso Self-Dealing5/20/2010 joe
  10. 10. #3 – Duty to Act Within Scope of Authorityo Know and understand your duties and the Board’s duties as outlined in the Declaration, Bylaws, and Idaho Code. See I.C. Sec. 30-3-1 et sec.o Where Directors exceed their authority, and damage results, Directors may be personally liable for their unauthorized actions.o What does your management agreement say?5/20/2010 joe
  11. 11. Griffith v. Rittenhouse Park Cmty. Asso. 215 N.J. Super.444 Action was brought by homeowners to compel homeowners association to provide lawn mowing services. Holdings: (1) homeowners association had obligation to provide lawn mowing services, and (2) board of trustees of association, acting prudently, could reduce services, choosing among them as it deemed appropriate, to extent necessary to avoid incurring any inadvisable debt.5/20/2010 joe
  12. 12. Cohen v. Kite Hill Community Ass., 142 Cal. App. 3d 642 Holdings: (1)The home-ownerso Action by homeowners in a were not limited to a suit residential community against a against the neighbors, but that homeowners association the association was a proper if alleging that the associations not an indispensable party, in architectural committee view of its duty to protect breached its duty to plaintiffs in individual homeowners approving construction of a affected by an improvement stone fence by plaintiffs and its authority to undertake neighbors that blocked plaintiffs all necessary legal actions to view, contrary to building fulfill its protective duties; and standards contained in a (2) HOAs owe a fiduciary duty declaration of covenants, to their members. conditions and restrictions.5/20/2010 joe
  13. 13. Woodward v. Bd. of Dirs. of Tamarron Ass’n of Condo Owners, 155 P.3d 621 Condominium unit ownersbrought action against condo-minium association, allegingbreach of covenants and fidu-ciary duty, and against adja-cent unit owners, alleging nui- sance, in regards to adjacentowners unit modifications.Holdings: (1) association didnot act arbitrarily or capri-ciously in the procedure it (3) genuine issues of material fact as toemployed to approve the unit whether the modifications made to adjacentmodification plans; (2) asso- condominium unit were the same orciations failure to consult with substantially similar to the plans submittedaffected unit owners prior to precluded summary judgment on breach ofapproving the modifications fiduciary duty and covenants claim; and (4)was not arbitrary and genuine issues of material fact existed as tocapricious; the effect modifications had on unit owners, precluding summary judgment on nuisance5/20/2010 joe claim.
  14. 14. Raven’s Cove Townhomes, Inc. v. Knuppe Development Co., 114 Cal. App. 3d 783 An association of townhouse ownersbrought suit against the project Holdings: (1) the association had standing todeveloper for defects in common arealandscaping and in the exterior walls of sue in a representative capacity for damages toindividual units, and against the individual units; andindividual developers and their (2) the individual initial directors of theemployees, as former directors incontrol of the association, for breach of association, comprised of the owners of thefiduciary duty by failing to properly development company and its employees, weredetermine operating costs and fund a strictly liable to the association for breach of themaintenance reserve account. basic fiduciary duties of acting in good faith and exercising basic duties of good management since the original directors admittedly failed to exercise their supervisory and managerial responsibilities to assess each unit for an adequate reserve fund and acted with a conflict of interest.
  15. 15. Siddons v. Cook, 887 A.2d 689 Owner of downstairs condominium unit brought action against condominium association and upstairs unit owners after broken dishwasher hose in upstairs condominium flooded downstairs unit. Holdings: (1)upstairs unit owners were not strictly liable to down-stairs unit owner; (2)upstairs unit owners did not breach duty of care to downstairs unit owner; but… (3) Condominium had duty to warn unit owners of potential problems caused by dishwasher hoses;5/20/2010 joe
  16. 16. That’s All Folks!!! Free training seminars monthly. Vial Fotheringham 12828 LaSalle Street #101 Boise, ID 83713 Telephone: 208.629.4567 Cell: 208.859.0097 Facsimile: 208.392.1400 www.vf-law.com310311joe