Directors must be diligent and careful in performing the duties they have undertaken.
1. Attend and participate in meetings so they can be informed about the association's business.
2. Make reasonable inquiry re maintenance issues, rules violations, etc.
3. Make decisions.
4. Keep corporate records.
5. Enforce the governing documents.
B. DUTY OF LOYALTY. In addition to the duty of care, directors and officers owe the association a fiduciary duty of loyalty. That means protecting the interests of the association and refraining from doing anything that would injure it.
This includes the following:
1. No Self-Dealing.
Directors cannot use their position of trust and confidence to further their private interests. They must act in the best interests of the association even if at the expense of their own interests. This is more than just embezzlement of funds; it includes steering contracts to family members or taking actions that result in personal benefits to the director at the expense of the association. Violation could result in liability for all profits received, all damages caused by the breach, and punitive damages. "We note that the duty of undivided loyalty applies when the board of directors of the association considers maintenance and repair contracts, the operating budget, creation of reserve and operating accounts, etc. Thus, . . . [directors] may not make decisions for the association that benefit their own interests at the expense of the association and its members."
2. Duty of Confidentiality.
A duty to keep confidential matters confidential falls under the duty of loyalty. Breaching the duty of confidentiality could result in harm to the association, which would be a breach of the Duty of Loyalty. See "Director's Duty of Confidentiality."
3. Duty to Preserve Common Areas.
Boards have a duty to protect, preserve and enhance the assets of the association. An association's primary asset is the common areas.
4. Duty to Support Board Decisions.
The duty of loyalty can extend to the support of board decisions. Because board members are entrusted with the money and property of the association they must avoid conflicts of interest.
Breach of Duties.
Board members are held to a high standard of conduct, the breach of which may subject each or all of them to individual liability. Board members can, however, make incorrect decisions, as well as correct ones, so long as it is faithful to the corporation and uses its best business judgment.
Upon their election to the board of directors of a common interest development, boards have the authority and duty to act on behalf of the association. Boards can delegate many of their duties. However, there are some duties that are nondelegable.
In determining whether directors violated their fiduciary duties, courts will use the Business Judgment Rule. To avoid potential breaches, boards should adopt an ethics policy to guide directors. “Notwithstanding the deference to a director’s business judgment, the rule does not immunize a director from liability in the case of his or her abdication of corporate responsibilities.” "A director cannot close his eyes to what is going on about him in the conduct of the business of the corporation and have it said that he is exercising business judgment.”
As volunteers, directors are protected from personal liability through the governing documents and various laws provided they meet certain standards. See "Protections Against Liability."
Statute of Limitations.
The statute of limitations for an action against an association or board member for breach of fiduciary duties is three (3) years from the discovery of the wrongful act.