Confidentiality
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DIRECTOR CONFIDENTIALITY

Board members have a fiduciary duty to keep confidential information confidential. For most executive session matters, confidentiality should extend indefinitely. This includes personnel matters, an owner's delinquency payment plan, disciplinary actions, and attorney-client privileged communications.

Who Can Waive Confidentiality? The authority to release information is held by the board as a whole, not by individual directors. Once the information is released, it cannot be taken back. Accordingly, directors who release information without board approval could face significant consequences.

Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 348-49 (1985) (power to waive the corporate attorney-client privilege rests with the corporation’s management and is normally exercised by its officers and directors; the managers, of course, must exercise the privilege in a manner consistent with their fiduciary duty to act in the best interests of the corporation and not of themselves as individuals); See People ex. rel. Spitzer v. Greenberg, 50 A.D.3d 195, N.Y.S. 2d 196, 200-01 (2008); See Stewart Equip. Co. v. Gallo, 32 N.J. Super. 15 (Law Div. 1954) (The attorney-client privilege applies to a corporation and can only be waived by the corporation; the act of an officer of a corporation is not regarded as the act of the corporation, unless authorized); See Lane v. Sharp Packaging Sys., Inc., 2002 WI 28, 251 Wis. 2d 68, 98-99 640 (holding former director could not waive lawyer-client privilege on behalf of corporation.)

Consequences. If an individual director discloses confidential information without prior board approval, that director is acting outside his/her scope of authority and could be personally liable for claims of defamation, invasion of privacy, violations of statute, etc. Any judgments against the director would likely not be covered by the association's insurance.

Where it can be shown that a director seeks information to damage the corporation, the director's claim that he needs the information to fulfill his fiduciary duties to the corporation has no merit. (Washington ex rel. Paschall v. Scott, 247 P.2d 543 (Wash. 1952).)

Disciplinary Action. Directors who reveal confidential information without board approval can be disciplined.

A member ...can be punished under disciplinary procedure if he violates the secrecy of an executive session. Anyone else permitted to be present is honor-bound not to divulge anything that occurred. (Robert's Rules, 11th ed., p. 96.)

Most often, the punishment is a censure by the board. In addition, the board could form an executive committee that excludes a problem director to handle sensitive matters.

Confidentiality Agreement. In addition, the board could require the misbehaving director sign a confidentiality agreement. If he/she refuses, the board can exclude the director from all communications and meetings involving confidential issues. Adversarial directors can be excluded from particular issues involving the director.

Recommendation: Boards should adopt an ethics policy and consider an ethics pledge.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

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