A Layman’s Look at Fiduciary Duty

A Layman’s Look at Fiduciary Duty

By Betsy Barbieux, CAM, CFCAM, CMCA / Published April 2020

Photo by iStockphoto.com/stevanovicigor

Have you ever wondered why the Florida Statutes make our boards of directors meet in the “open,” when other types of for profit and not for profit corporate boards of directors do not? And have you wondered why members and unit owners have the right to attend a board of directors meeting? After all, the meeting is not for the members; it’s for the board of directors to get the business of the corporation accomplished. The board meeting is not an informational meeting for the members and unit owners. So why on earth are owners allowed to attend a board meeting? (Section 718.112(2)(c), and Section 719.106(1)(c), and Section 720.303(2)(a), Florida Statutes.)

     Section 617.0830, Florida Statutes, The Florida Not for Profit Corporate Act, seems to describe what might commonly be called the “prudent man rule.” Since most of our community associations are organized as corporations under Chapter 617, this prudent man rule is automatically incorporated into our statutes and documents.

     But then, it seems our community association statutes elevate our boards of directors to a fiduciary relationship with the members and unit owners. (Section 718.111(1)(a), Section 719.104(8)(a), and Section 720.303(1) and (3), Florida Statutes.)

     So why do Chapters 718, 719, and 720 add the word “fiduciary”? Are the legislators holding our board members to a higher standard than a “prudent man”? Is there a difference in the relationship a “prudent man” has with someone and the “fiduciary relationship” our board members have with the owners? Is there a connection between the word “fiduciary” and the “open meeting” requirements?

     As you consider the word fiduciary and the who and what of that word, you might think of your financial planner. Your financial planner has a fiduciary relationship to you. He is managing your assets and is to do so in your best interest. He only manages your assets with your consent and involvement. Unless specifically authorized, he will not make decisions that affect your assets without your knowledge.

     Similarly, the duty of our boards of directors is to (1) protect the property and its value, (2) maintain the things that members and owners use in common, and (3) enforce the restrictions on the owners’ use rights of the common elements and areas. That is, the boards of directors are making decisions that might affect the greatest asset many people have—their homes.      

     Since it would be contrary to the way corporations operate to have the members and owners involved in every decision made by the board, but because the board members are likely making decisions that could affect the value of the members and unit owners homes, the boards are required to meet in the “open” with members and unit owners allowed to attend to hear the discussions and ultimate decisions made by the board. To complicate things more, the legislators also allow the owners in attendance to comment on a designated agenda item.

     Fortunately, the legislators give the board of directors the ability to create rules for how and when owners make those comments and may require them to sign up ahead of time noting the item on which they wish to comment and can limit their commenting time. Owners should not be allowed to hijack a board meeting and make comments, ask questions, yell, scream, and holler about things that are not on the agenda. There should be other ways to collect and address owners’ concerns regarding maintenance or violations, but not at the board meeting.

     Making decisions that may affect the value of the members’ and owners’ homes is also why the agenda specifically identifies those items on which the board is going to discuss or take action. The agenda, in most cases, must be posted on the association property 48 hours in advance of the meeting. Unlike other types of board meetings in other organizations, nothing may be added to the agenda at the meeting. Except in emergency cases, there are to be no surprises to an owner at a board meeting of the items to be discussed. Owners need the opportunity to see the agenda in advance of the meeting and decide if they want to attend and make comments on any designated agenda item.

     All of this results in a very awkward blend of statutes that connect “fiduciary” with “open meetings,” with designated agenda items on which owners may comment and, our use of the Procedures for Small Boards in Robert’s Rules of Order. Awkward is an understatement.

     With board members being elevated to a fiduciary relationship to the members and unit owners, it then begins to make some sense why a vote of each board member must be recorded into the minutes, why the president does vote (and may make motions and may debate), and why the statutes say board members could be personally liable for their actions. Then, it is a natural conclusion that board members should have Director and Officer Liability Insurance. This coverage should pay for their defense in the event the board members are sued by a member or unit owner for a board decision.

     But, remember, this coverage only covers board members who do right and are acting within their fiduciary relationship. If a board member does wrong on purpose, she is on her own. (Section 718.111(1)(d), Florida Statutes, in part, “…kickback, or … actions constitute recklessness, or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. Forgery of a ballot envelope or voting certificate used in a condominium association election is punishable as provided in s. 831.01, the theft or embezzlement of funds of a condominium association is punishable as provided in s. 812.014, and the destruction of or the refusal to allow inspection or copying of an official record of a condominium association that is accessible to unit owners within the time periods required by general law in furtherance of any crime is punishable as tampering with physical evidence as provided in s. 918.13 or as obstruction of justice as provided in chapter 843.”)

     Board members are then required by statute to (1) file a written certification of satisfactory completion of an educational curriculum administered by a division-approved condominium education provider within one year before or 90 days after the date of election or appointment, or (2) sign a statement that says he or she has read the association’s documents and will work to uphold such documents and policies and will faithfully discharge his or her fiduciary responsibility to the association’s members.

     It is likely that board members who choose option two don’t have a clue what fiduciary relationship means, and I bet they haven’t read all their governing documents.

Betsy Barbieux, CAM, CFCAM, CMCA

Florida CAM Schools

     Betsy Barbieux, CAM, CFCAM, CMCA, guides managers, board members, and service providers in handling daily operations of their communities while at the same time dealing with different communication styles, difficult personalities, and conflict. Effective communication and efficient management are her goals. Since 1999, Betsy has educated thousands of managers, directors, and service providers. She is your trainer for life! Betsy is the author of Boardmanship, a columnist in the Florida Community Association Journal, and a former member of the Regulatory Council for Community Association Managers. For more information, contact Betsy@FloridaCAMSchools.com, (352) 326-8365, or www.FloridaCAMSchools.com.