WHEN AN OFFICER OR DIRECTOR’S CONDUCT CROSSES THE LINE

Florida Statute 718.111(d) states:

An officer, director, or agent shall discharge his or her duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner he or she reasonably believes to be in the interests of the association. An officer, director, or agent shall be liable for monetary damages as provided in s. 617.0834 if such officer, director, or agent breached or failed to perform his or her duties and the breach of, or failure to perform, his or her duties constitutes a violation of criminal law as provided in s. 617.0834; constitutes a transaction from which the officer or director derived an improper personal benefit, either directly or indirectly; or constitutes 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.

 

If you’re on a Board of Directors you may have read the above law and thought that it’s risky to serve on a Board of Directors because you can potentially be liable for monetary damages for wrongdoing.  The truth is that this statute is only scary, if you intend on either financially benefitting from your position on the board or intend to deliberately use your position to harm someone.

 

The statute only imposes liability against a director for:

  1. Criminal conduct – for example you steal money from the association’s coffers;
  2. Receiving an improper personal benefit – for example you get a kickback for awarding a contract to a vendor;
  3. You are reckless or act in bad faith with malicious purpose — meaning you single someone out for prosecution because of their race, religion, color or a personal beef you are having with them;
  4. You act in a manner exhibiting wanton and willful disregard of human rights, safety, or property – this one you need to be careful about. Don’t ignore dangerous conditions on the property.  If you do, you may be personally liable.

 

The bottom line is that under Florida law, condominium and HOA directors are immune from individual liability, absent a crime, fraud, self-dealing or unjust enrichment. Perlow v. Goldberg, 700 So.2d 148 (3rd DCA, 1997)

In addition, Munder v. Circle One Condominium, Inc., 596 So.2d 144 (Fla. 4th DCA 1992), expresses the longstanding proposition that condominium association directors are immune from individual liability, absent a crime, fraud, self-dealing or unjust enrichment. In Munder, the developer-director was found to have breached his fiduciary duty by failing to renew fire insurance on the development’s clubhouse, yet the fourth district did not hold the director personally liable. The Munder court reasoned that individual directors cannot be held liable for negligent actions even if such actions were clearly wrong. See also Taylor v. Wellington Station Condominium Ass’n, Inc., 633 So.2d 43 (Fla. 5th DCA 1994) (restating the general rule of director immunity from suit; however, holding that there was enough evidence of self-dealing to preclude summary judgment for the directors); Olympian West Condominium Ass’n, Inc. v. Kramer, 427 So.2d 1039 (Fla. 3d DCA 1983) (directors not personally liable for failure to correct construction defects); Bodin Apparel, Inc. v. Superior Steam Service, Inc., 328 So.2d 533 (Fla. 3d DCA 1976) (directors not personally liable in tort action despite failure to provide workers compensation insurance for employee).

Next week we’ll talk about some new laws that can get directors in trouble with the law and have them removed from the Board and even arrested.  But know in the interim that the public policy behind this law is to encourage persons to run for the board and get involved.  If there was the possibility of personal liability for negligent actions, rather than intentional misconduct, that public policy would be thwarted as you would have to be crazy to expose yourself to such liability.

What do you think?

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