The Communicator - Volume 1, Issue 2 - (Page 12)

Corporation Code Section 7231(a) sets forth your duty as a director. You must act: • In good faith; • In the best interest of the association; • Only after a reasonable inquiry; • In the way an ordinary, prudent person would act under similar circumstances. The above is from our fiduciary duty presentation and outlines the Corporation Code safe harbor provision. To stay within the Corporation Code safe harbor, the board members need to follow all four of these requirements. The third and fourth items are especially relevant to this question, to wit: 3) Only after reasonable inquiry (get the expert opinion), and; 4) In the way an ordinary, prudent person would act under similar circumstances (a prudent person would follow the expert advice). These are the first elements in response to the question of why members of a board should follow the advice of the experts they hire. Furthermore, Corporation Code §7231(b) allows a director to rely upon advice from his legal counsel, accountant and other persons whom the director believes have competence, knowledge and expertise concerning the relevant issues (e.g., experts). This is important because it provides a basis for board members to assert that the mistake was not with the judgment of the board but was with the advice of the expert if something goes wrong. If the board does not follow the advice of the expert and the very thing that the expert was retained to advise the board on occurs because the board didn’t follow his advice, the expert’s opinion now becomes the basis for fi nding the board liable. Further, those members who voted for the action taken, which was in opposition to the expert’s advice, are outside the safe harbor and could be personally liable! Civil Code Section 1365.7 (part of the Davis-Stirling Act) provides in part that a director will not be personally liable as long as the director’s action meets several conditions. The conditions relevant to the question of follow- ing an expert’s advice are found in the following specific statutory language, to wit: “(1) The act or omission was performed within the scope of the offi cer’s or director’s association duties. (2) The act or omission was performed in good faith. (3) The act or omission was not willful, wanton or grossly negligent.” “Within the scope of the officer’s or director’s duties.” This includes not practicing your own profession as a board member, i.e., a lawyer practicing law, an architect practicing architecture, etc. In other words, the officer or director must keep his amateur status. “The act or omission was performed in good faith.” This includes not performing an act that furthers a personal agenda, such as avoiding a special assessment to fund work an expert advised the board must be done or choosing a vendor based upon a personal interest or involvement, etc. “The act or omission was not willful, wanton or grossly negligent.” This part of the preconditions for safe harbor focuses on not doing something MANAGEMENT CORPORATION PML “PML Management, since 1975, protecting homeowner association properly investments now, and for the future.” COMPETITIVELY PRICED, ONE-STOP, INTEGRATED ASSOCIATION MANAGEMENT SERVICES Meeting Attendance and Property Inspection Complete Accounting Services and Budget Preparation In-House Maintenance Large Repair Project Management Work Order Tracking and Follow-Up 24-hour Emergency Services PML Management Corporation 655 Mariners Island Boulevard •SAn Mateo, CA 94404 • (800) 347-7756 www.pmlmanagement.com 12 • The Communicator http://www.pmlmanagement.com http://www.kellymoore.com

Table of Contents Feed for the Digital Edition of The Communicator - Volume 1, Issue 2

The Communicator - Volume 1, Issue 2 Contents President's Message The Hammer is Broken Top 10 Mistakes That Get Board Members Sued Dealing with Bankruptcy Ask the Experts – Are Your Contractors Licensed and Insured? 2008 Events & Education Calendar Welcome to CAI BayCen Directory Updates Index to Advertisers

The Communicator - Volume 1, Issue 2

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