Jeremy O. Evans

Fiduciary Duty 101: A Primer for Directors

Jeremy O. EvansMarch 2011

Jeremy O. Evans

What is a Fiduciary?

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 Dictionary

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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

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Who is a fiduciary of whom?

o Association: of memberso Board: of memberso Board: of Associationo Manager?o Realtors?o Bankers?o Other employees?

What Duties Does a Fiduciary Owe?

1. Duty of Care2. Duty of Loyalty3. Duty of Discretion

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#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 Rule

#2 – Duty of Undivided Loyalty

o Conflicts of Interest– Disclosure– Abstention from Voting / Making Decisions

o Self-Dealing

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#3 – Duty to Act Within Scope of Authority

o 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?

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Griffith v. Rittenhouse Park Cmty. Asso. 215 N.J. Super.444

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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.

Cohen v. Kite Hill Community Ass., 142 Cal. App. 3d 642

o Action by homeowners in a residential community against a homeowners' association alleging that the association's architectural committee breached its duty to plaintiffs in approving construction of a stone fence by plaintiffs' neighbors that blocked plaintiffs' view, contrary to building standards contained in a declaration of covenants, conditions and restrictions.

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Holdings: (1)The home-owners were not limited to a suit against the neighbors, but that the association was a proper if not an indispensable party, in view of its duty to protect individual homeowners affected by an improvement and its authority to undertake all necessary legal actions to fulfill its protective duties; and (2) HOAs owe a fiduciary duty to their members.

Woodward v. Bd. of Dirs. of Tamarron Ass’n of Condo

Owners, 155 P.3d 621

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Condominium unit owners brought action against condo-minium association, alleging breach of covenants and fidu-ciary duty, and against adja-cent unit owners, alleging nui- sance, in regards to adjacent owners' unit modifications.

Holdings: (1) association did not act arbitrarily or capri-ciously in the procedure it employed to approve the unit modification plans; (2) asso-ciation's failure to consult with affected unit owners prior to approving the modifications was not arbitrary and capricious;

(3) genuine issues of material fact as to whether the modifications made to adjacent condominium unit were the same or substantially similar to the plans submitted precluded summary judgment on breach of fiduciary duty and covenants claim; and (4) genuine issues of material fact existed as to the effect modifications had on unit owners, precluding summary judgment on nuisance claim.

Raven’s Cove Townhomes, Inc. v. Knuppe Development Co., 114

Cal. App. 3d 783 An association of townhouse owners brought suit against the project developer for defects in common area landscaping and in the exterior walls of individual units, and against the individual developers and their employees, as former directors in control of the association, for breach of fiduciary duty by failing to properly determine operating costs and fund a maintenance reserve account.

Holdings: (1) the association had standing to sue in a representative capacity for damages to individual units; and (2) the individual initial directors of the association, comprised of the owners of the development company and its employees, were strictly liable to the association for breach of the 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.

Siddons v. Cook, 887 A.2d 689

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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;

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