Board Members Charged
A past president of the Board of Directors of Hammock Community Association in West Kendall, Florida, along with her husband and three others, were arrested. The board members were charged with crimes ranging from grand theft, racketeering, fraud, and money laundering related to a years-long scheme to siphon money intended for community maintenance and upkeep into their own pockets. The former board president is alleged to have systematically directed association funds to companies owned and operated by her husband, which money was then used for their personal living expenses. She too paid nearly $1,000,000 to three companies with whom she had an apparent arrangement where the companies would cash the checks, retain ten percent, and give the remainder of the money back to the former president. The former board president is now facing 150 years in prison if convicted on all thirteen charges she faces.
Association Duties
While the above is a particularly shocking and gaudy display of greed, arrogance, and stupidity, it serves as a reminder for the duties owed to an association when you serve as a volunteer member of the board of directors. Each board member owes heightened, fiduciary duties to the association, which includes the duty of loyalty. The duty of loyalty requires directors to act for the association’s benefit only, and not for their personal benefit or the benefit of others. Fulfilling the duty of loyalty requires that directors exercise their powers in the association’s best interest, as opposed to their own personal interest.
In addition to the duty of loyalty, each director must discharge their duties, as set forth in the association’s governing documents and applicable statutes, with the duty of care. C.R.S. § 7-128-401 of the Colorado Revised Nonprofit Corporation Act (“Nonprofit Act”) sets forth the general standard of conduct for directors and officers, stating, in relevant part, that each director shall discharge their duties as a director or as a member of a committee: (a) In good faith; (b) With the care an ordinary prudent person in a like position would exercise under the circumstances; and (c) In a manner the director or office reasonably believes to be in the best interest of the nonprofit corporation.
Conflicts of Interest
In addition, directors are required to disclose and follow the association’s procedures for the handling of potential conflicts of interest. The Colorado Common Interest Ownership Act (“CCIOA”) generally defers to the Nonprofit Act to address and define “conflicting interest transactions” but does require associations adopt a policy on the handling of conflicts of interest involving members of the board. The Nonprofit Act defines a “conflicting interest transaction” as a “contract, transaction or other financial relationship between a nonprofit corporation and a director of the nonprofit corporation, or between the nonprofit corporation and a party related to a director, or between the nonprofit corporation and an entity in which a director of the nonprofit corporation is a director or officer or has a financial interest.”
Conflicting interest transactions are not inherently impermissible but must only be engaged in with a full disclosure of all relevant interests, fair to the association, and approved by a majority of the disinterested directors.
Do you have questions regarding the duties owed by board members or other legal matters impacting your community? Please contact one of our attorneys to discuss this. Orten Cavanagh Holmes & Hunt, LLC offers a full range of legal services for community associations. We strive to provide tailored, appropriate solutions informed by the objectives of your community, board, and management.
