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Big bucks or no, board's duty is the same

December 31, 2006|Stephen Glassman and Donie Vanitzian | Special to The Times

Question: I live in a Los Angeles area building with units priced at $2 million and up. The board of directors assessed all owners for installing a freight elevator. But my son learned that the Department of Building and Safety denied the building a permit for this because our structure is unsound. Our directors are spending money like crazy. They brainstorm in executive sessions, secret meetings, conference calls, e-mails and private soirees. Board minutes are "minimized" so as not to alarm owners or alert new buyers to what goes on.

I think the board is keeping the elevator money to divert it to the latest decorating project. If some directors are attorneys, can they be held responsible to the owners for these decisions?

Answer: Whether the units cost $2 million or $200,000, the board members' fiduciary duties are the same, and they remain the same whether the director is an attorney or a blue-collar worker. Attorney directors may be held to a higher standard of duty, especially if they knowingly break the law or abet others to do so.

Meetings are defined in Civil Code Section 1363.05(f), and the permissible reasons for adjourning to executive session are found in Civil Code Section 1363.05(b). Attorneys who advocate holding executive sessions for any reason other than those listed in the law should be reported to the State Bar Assn. In some cases, they can be suspended or disbarred.

Intentionally whitewashing minutes for the purpose of keeping information from homeowners or prospective buyers is deceitful and may constitute fraud. The fact that Building and Safety rendered the structure "unsound" should have been disclosed to every titleholder. Any injuries that might result because of that problem would result in liability to the association and its members.

Deliberately depleting operating funds with the intent of replenishing assessments to make up the shortfall is a violation of Civil Code Section 1365.5(c)(1) and (2) and Section 1366.1 in addition to a breach of the board's duty to the association and owners. Special assessments collected for a particular purpose must be used only for that purpose or returned to owners. The directors who authorized those expenditures are liable if the money is spent on projects other than the intended purpose.

If the Department of Building and Safety denied the elevator permit and the board willfully concealed this fact so it could continue collecting assessments, this could constitute fraud. Whether the board has attorneys for directors or follows the advice from association attorneys, it must still abide by law.

Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mindspring .com.

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