Director Litigation
Adams Stirling PLC
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DIRECTOR SUED

QUESTION: Our president is named as a defendant in a suit by a homeowner for breach of fiduciary duty. Should the president resign temporarily as a matter of ethical conduct until the suit is settled? Should he recuse himself from all voting or what, if anything, is required in the law under such circumstances?

ANSWER: There is a presumption of innocence in the American legal system. Being sued by an owner does not disqualify a director from serving on the board. More often than not, such lawsuits have no merit and are filed for the sole purpose of harassing a director. Allowing questionable litigation to force directors off the board would only encourage more lawsuits.

DIRECTOR SUING
 

If a director sues the association or fellow directors, he must recuse himself from matters related to the litigation. Depending on an association's governing documents, he may also be disqualified from serving on the board during the course of the litigation.

LITIGATION ASSESSMENT
 

QUESTION: Is it legal for a member of the board to use association money to defend himself in a legal case which was initiated by an association member? It does not seem right that a board member can use the members’ money to defend himself--all the other members may be penalized by a special assessment because of it.

ANSWER: Yes, it’s legal for the association to fund the defense of a director who has been sued for his actions as a director. Most governing documents require that associations defend their directors. It is also provided for in Corporations Code §7237. Too many litigious members forget that when they sue their associations, the entire membership may suffer as a result.

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

Adams Stirling PLC