What Does “Believe” or “Good Faith” Mean to Directors in an HOA or Condo?

Here is a followup question about the good faith of board members.

As I know you’re very keyed in with HOA law, I was hoping that you might be willing to give me a tiny bit of direction on a pretty generic issue:

 Corp Code Section 7231.  (a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

Could that mean that a director could “believe” it is in the best interest of the corporation for that director to lie to a member about evidence or make an effort to avoid seeing certain evidence, if he thinks that it would financially hurt the corporation?  How is the referenced “good faith” defined … is that to the corporate entity or to the members?

This is a tricky question. The key word is “believe”. If a director truly believes that he or she is acting in the best interest of the association, then whatever he or she does short of breaking a law or intentionally causing harm, it is possible that he or she would be protected by this law. However note the connector “and”, meaning the “belief” must be in good faith and involve reasonable inquiry.

So if a board member purposely avoided inquiry, or as I said acted intentionally to cause harm to another, the other two elements would be missing and any “claimed belief” would not save the director.

So I could say “no”, the law does not mean a director can or should lie. But different people mean and say things that sometimes are not correct. Someone could tell me someone else lied and that person might tell me they did not “lie”. Example: Board member says the association does not have enough money for “X” and the owner wants “X” and knows that the board could choose to spend money for “X”. Is that a “lie”? Not really, if “X” is not within the budget. But technically, there is money for “X” – it is just that something else would have to go. So one might call it a “lie” when there is a rational explanation for stating what is said.

So, I do not know how to answer this definitively because I am not in the director’s position or any other owner’s position for that matter and do not know all of the facts. I am certainly not in favor of lying to people, but there are many ways to present facts or prepare strategies and sometimes owners get upset about what is said, or what is not said. Owners cannot always be told everything because some knowledge if not protected by confidential privileges may jeopardize the association’s position in litigation or any given situation that requires more research or investigation.

When asked for my opinion, it is hard to be definitive until I know more of the facts, and can understand both perspectives, except to say that people – and board members – should not lie. And the statute cited does not intend to be protection for people that do.

 If I only know one side, then I have to qualify my answers. That’s just the way it is.

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5 Responses to What Does “Believe” or “Good Faith” Mean to Directors in an HOA or Condo?
  1. Dale Beckes
    November 20, 2009 | 3:00 pm

    Might acting in “good faith” include a Board member who is also a member of a committee (architectural in this case) that is making a decision that benefits that person, include the responsibility to remove one’s self from that decision making?

    • Beth Grimm
      November 30, 2009 | 12:31 am

      Definitely yes!

  2. Linda Lai
    November 28, 2009 | 9:42 pm

    Would reasonable inquiry mean or include legal advice? What if the board never gets legal advice?

    • Beth Grimm
      November 30, 2009 | 12:20 am

      “Reasonable inquiry” means consulting the right kind of expert or authority on matters for which the Board needs information but lacks the requisite expertise to make a determination or take action. Example 1: consulting a pool construction contractor with knowledge about the right kind of drain modification needed to satisfy the requisites of the Virginia Graeme Baker Swimming Pool Act. Example 2: consulting a knowledgeable attorney for advice if someone in an HOA makes a request for an accomodation for a disability and the request will be detrimental to other owners in some way, and the board does not know what is the best (and legal) response.

      • Linda Lai
        November 30, 2009 | 5:02 am

        This is a very good answer and greatly appreciated.