Question: A couple of our board directors are alcoholics. Because of their director positions they are able to enter into contracts, negotiate with potential vendors and decide what maintenance projects should take place. They have entered into agreements and signed contracts while inebriated, then not recalled signing the contracts. They don't recall conversations and promises made to certain owners, vendors and management. Other board directors learn of the contracts too late to rescind them. Directors and owners are hesitant to broach this subject with them because the last discussion turned ugly. These individuals are very popular and well liked, and no one wants to hurt their feelings so they keep getting reelected. Both directors attend various support groups for their alcoholism but their actions and poor judgment end up costing the association and owners money by binding us to contracts we probably would not have entered into. How do we tactfully handle this situation so we don't get sued for discrimination?
Answer: The tactful method for handling this situation ended when those board directors were unable to remember their actions.
Having an addiction to alcohol does not make one a member of a protected class, nor does it exempt such directors from performing their duties. Directors are still obligated to provide notice for all meetings at which their decisions are/were made and to keep minutes, which must be produced upon request by any titleholder.
Under the law, it appears as if these directors are unable to perform the duties required of them and should be removed from the board. If the directors don't resign, owners can call a special meeting for the purpose of removing them. Under Corporations Code section 7222, any or all directors may be removed without cause by the titleholders. Read your covenants, conditions and restrictions for the procedures to follow for removal of a director.
Each board director owes the association and its titleholders a duty of "care" and "loyalty." That means taking their obligations seriously and refraining from reckless behavior. Signing a contract and not remembering that act is reckless. Owners put their trust in the board as fiduciaries and believe directors will act in good faith.
Under the duty of care, each director is required to perform an independent investigation before entering into any contract or binding the association in any way. It is not enough to merely accept the word of another director that due diligence has been performed.
If ensuring good faith means changing the way contracts are signed, that can be accomplished by simply passing a resolution to that affect. A breach of duties that results in damages can mean those directors are liable individually.
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