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__The continuation of this post is a letter to the MOA Board of Directors Re Nordeen v MOA and Related Issues. The letter includes three attachments: A. Overview of why this lawsuit; B. Roles of Board and Attorney; and C. Fiduciary Duty. Posted for members' information. Comments are welcome. Please scroll down to the end of this post after the attachments.
__A PDF file of this letter with its three attachments can be downloaded at 2008 Apr 05 Letter to the Board.
__The Complaint in Nordeen v MOA is available at Complaint, MOA Governing Documents.
__Some of the links in this post are to the password-restricted website. See the Welcome page to gain access.
Don Nordeen
==========
Click Continue for Post Continuation plus Comments.
- Key Words:xxKeyWords
Letter to MOA Board re Nordeen v MOA (continued)
Donald L. Nordeen
Gaylord, Michigan 49735
Voice: (989) 939-8240
2008 April 05
MOA Board of Directors
Mrs. Vicky Rigney - PresidentDear Colleagues:
Mr. Kirk Yodzevicis - Vice President
Mrs. Carolyn Study - Secretary
Mr. Tad Latuszek - Treasurer
Mr. Robert Olszewski
Mr. Robert Felt
Mr. Richard Gaubatz
Subject: Nordeen v MOA and Related Issues
__This letter provides further information on the lawsuit and the underlying related issues as I perceive them to be. My filing of a lawsuit in no way undermines any of my rights, or any other members’ rights, under the Covenants, Conditions and Restrictions, MOA’s Bylaws and/or other governing documents including policies and members’ motions. I respect the board’s limitations re uncompleted litigation, but that should apply only to issues in the lawsuit. As a property owner in this twisted world of CC&Rs and owners associations, my wife and I contribute to paying for the attorneys who are opposing the litigation.
__ Moreover, to illustrate the economic unbalance involved in any litigation between MOA and a member, MOA has the funds from about 2200 property units. The member has the funds associated with one property unit. I think this helps to explain why few members consider the courts for redress of their grievances, and decide instead to just live with the injustices they perceive. This inherent economic advantage to MOA may have been a factor in some of the past legal advice. It also explains why I am representing myself in Nordeen v MOA.
__ I believe also that the above paragraph illustrates why the board has a major obligation to carefully investigate concerns raised by any member about an action of MOA may have been beyond its authority. In my research on owners associations, I have not found a single writing that states a board has an obligation to defend a prior action of the owners association without careful investigation first. For six of the seven current board members, the actions involved in the lawsuit were initially taken prior to their election to the board. Nonetheless, inaction to investigate after a concern is raised is a conscious and deliberate act.
__ As discussed below, I believe the board has a fiduciary duty to obtain a legal opinion on how the court will likely rule on each of the counts in the lawsuit. If that legal opinion is that some or all of the counts are likely valid, I believe the board is obligated not to spend MOA funds, paid by all members (including my wife and me), to “vigorously defend” the counts. How would the members be served by such an arbitrary decision?
__ I believe the board has a dilemma on what to do with prior actions of MOA that may have exceeded MOA’s authority. This lawsuit provides a method to resolve questions that create the dilemma in a manner that should have credibility with all members. In that sense, I have hoped and intended to make the lawsuit “friendly”. But only friendly to a point. I believe the board has a fiduciary duty not to avoid governance decisions. Two of the cases cited in the briefs filed with the court discuss “failure to act” as a breach of fiduciary duty. The more factual and better organized a member’s concern about the validity of an action, the greater the obligation by the board to quickly investigate.
__ Another part of the dilemma is that requests for reconsideration of legal advice would likely result in the same legal opinions if asked of the same attorney(s). This is illustrated by Mr. Davison’s further analysis of whether or not the board has the authority to amend the bylaws. Even though the reason he used in 2001 was shown to be not applicable, he then found a different reason to support his 2001 opinion. If a second opinion is obtained from another attorney and it is different from the first, then the board has a dilemma. The legal standards that should be applied to any requested legal opinons should be definitive so that second opinions are likely to agree with the first. Terminating the two attorneys, which occurred before Mrs. Rigney received service of the lawsuit, was certainly justified, in my view. I note for the record that I was involved in the engagement of both attorneys while MOA’s president.
__ I remain hopeful that the board will view this lawsuit as a way to resolve ten difficult issues in a manner that will place the answers and MOA on a solid legal foundation. I have conducted extensive research on the issues and believe that the counts are well founded. However, if facts, law and arguments can show otherwise, I am open to those considerations. Hopefully, the Association through its counsel(s) can circumvent the necessity of the court’s intervention, and/or to keep it to a minimum.
__ Objectives in the Lawsuit — What I am seeking in the lawsuit are determinations of whether or not the prior actions in the ten counts are within the scope of the authority of MOA. Members need the stability and predictability that comes with adherence to the governing documents in all actions of MOA. All MOA members and the board should share in this objective.
__ Reasons for Bringing this Lawsuit — The reasons are very simple; the concerns about MOA actions outside the scope of its authority were not addressed by the boards. Even after advising the President and another board member at an board agenda planning meeting on 2007 Sep 06 about the statute of limitations for the board’s 2001 amendment to the bylaws, and advising the full board of the broader issues in an 2007 Sep 18 email, the subject was not on the agenda for the 2007 October 20 board meeting. My 2007 Sep 18 email is posted on my Michaywe Weblog at <http://swagman.typepad.com/michaywe_poa/2007/09/board-action-on.html>, which describes seven of the ten counts in the Complaint.
__ My observations indicate that none of the issues ever made it to the board’s agenda. Whether or not the board had the authority to amend the bylaws went on for almost six years.
__ The question as to whether or not the board has the authority to assess a blanket late fee for delinquent dues has existed for at least two years. See my emails to the board dated 2005 December 10, 2005 December 22, 2007 March 26, 2007 March 28, 2007 April 3, 2007 June 12, and 2007 September 25. Yet the board appears to be proceeding with a proposed amendment to the Bylaws, which has to subordinate to the DMCCR to be valid, without ever placing the authority for the board to assess a blanket fee on any board agenda. There is no provision in the DMCCR granting such authority to MOA.
__ Other members and I have questioned the co-mingling of DR/CI Dues with Regular Dues on several occasions. I have written to the board several times. The last letter was an extensive analysis of the DR/CI Dues dated 2007 May 02. No action by the board — not even to place it on any board agenda.
__ When there is no board action on these easy three, I concluded that there would similarly be no action of the other seven, which are more complex.
__ I have a long list of other actions that have been recommended by members to the board with no action.
__ An analysis and reasons for filing the lawsuit are included in the Introduction to Plaintiff’s Brief in Opposition to Defendant’s Motion for Summary Disposition — a document now in the public record. That Introduction is copied into Attachment A. Please note footnote 2. My observation in board meetings is that an inquiry seldom occurs with regard to whether or not a motion under consideration conforms to the governing documents. By all appearances, conforming to the governing documents is not, and has not been, a priority for boards. This board can check the minutes and other records — part of reasonable inquiry, in my view.
__ Roles of the Board and MOA’s Attorney — I have also discussed these considerations at Open Forums and Town Hall Meetings. Some of the correspondence has involved these relationships. The organization is the client — not the board and not the members. Attorneys have an obligation to represent MOA, not the board, though the board, through its designated agent, communicates with the attorney(s). These considerations have been on my Michaywé weblog since 2005. The weblog discusses the communication requirements with the attorney, and includes suggested content for a letter of engagement which would help avoid some of the problems in the Complaint.
__ The legal support for these statements was provided in Plaintiff’s Brief in Opposition to Applicant Intervenors’ Motion to Intervene. That part of the Brief is copied into Attachment B — a document now in the public record. The Brief in Opposition to Defendant’s Motion for Summary Disposition cites case law that a board cannot blindly adopt the conclusions from an attorney. Reasonable inquiry must be made. The instructions from the agent are equally important since any advice given by an attorney is dependent upon the instructions. Instructions include the definition of the issue, the facts provided, the assumptions to be made, and the standards to be applied. Further, individual board members should be concerned about other board members requesting support for a specific results based on some hidden agenda, or an agenda not communicated to members. And, was the legal opinion based on the assumption that it would likely not be challenged by any member because of the economics of litigation? My observation is that the instructions are typically missing, and are generally not repeated in the attorney’s opinion. Without the question, the legal opinion is a game of “Jeopardy”. In my requests for records, very few instructions have been released. Of the instructions provided, many were not from a board member. This board can check the records to determine the level of inquiry made. Determine whether or not the conclusion of the attorney was blindly adopted.
__ From a members’ perspective, there is very little information. Typically, the board’s briefing materials, handouts at the board meetings and other communications are not part of the board minutes made available for members’ inspection. Documents being reviewed by the board at board meetings are generally not given to members in attendance.
__ Since the client for the attorney(s) is MOA and not the board, MOA’s attorney(s) has/have an obligation, among other aspects, to ensure prudent use of limited MOA funds. I believe the attorney(s) is/are obligated to quickly determine the likely validity of the counts in the Complaint. If likely valid, I believe the attorney(s) is/are obligated to quickly communicate same in clear, descriptive and understandable terms to the board. Moreover, the board should be making that request.
__ Fiduciary Duty — Understanding fiduciary duty by individual board members is probably the most important aspect of being a board member. Fiduciary duties define the obligations under the law, and may be a factor in possible personal liability of individual board members. The opinion from one of the federal courts describes that a director is “"held to a standard of due care. They must meet this standard with 'conscientious fairness.'”
__ There are some wonderful papers on the subject. Of my several emails to the board on this subject, the most important one is dated 2004 December 11, entitled “Fiduciary Duty of Adherence to Governing Documents” It appends a paper by an insurance company attorney discussing the three fiduciary duties: care, loyalty and obedience. The best Michigan paper on the subject that I have found is copied as Attachment C. Since I downloaded the paper from the internet, it is also in the public domain. The 2004 Dec 11 email also includes 20 references to information available on the internet. This board can check the record to determine what action has been taken concerning fiduciary duties.
__ Communication to Members — The absence of communication concerning Nordeen v MOA to all members by first-class mail is disturbing. While the plaintiff is only one member and no one else is being represented, the effects of court rulings that actions were invalid could potentially affect all members. Some members could view such rulings to be adverse to their personal interests, independent of the validity under the law. It is analogous to someone seeking to have some law declared unconstitutional. If declared unconstitutional, many citizens could be affected even though they are not parties to the lawsuit.
__ Members are obviously interested in the costs and the effect on the budget. Can the board defend “vigorously defending” the Complaint without investigation of the likely validity of the counts in the Complaint? Would the board be providing the same direction to the attorneys if the board members were paying the attorney fees with their own funds? Due care is required in the wise use of limited MOA funds.
__ For your consideration. I am hopeful that the ten problems in my Complaint can be resolved and placed on a solid legal foundation without extensive court intervention. I have conducted extensive research on the issues and believe that each of the counts is well founded. However as previously stated, if facts, law and arguments can show otherwise, I am open to those considerations.
__ Posted on my Michaywé Weblog — This letter and attachments will be posted on my Michaywé Weblog so that it is available to any member who may be interested.
Sincerely,
/s/
Donald L. Nordeen
Attachments
__ A. Why this lawsuit?
__ B. Roles of Board and Attorney
__ C. Fiduciary Duty
cc: Mr. Todd Chwatun - General Manager
__ Ms. Laura Dinon
__ Ms. Kerry Rhoads-Reith
File: >>MOA Bd80405 DLNvMOA.cwk
Attachment A
PLAINTIFF’S BRIEF IN OPPOSITION TO
DEFENDANT’S MOTION FOR SUMMARY DISPOSITION
PLAINTIFF’S BRIEF IN OPPOSITION TO
DEFENDANT’S MOTION FOR SUMMARY DISPOSITION
INTRODUCTION
Overview
__ This action is before the court on a Complaint filed by an owner of property unit in the Michaywé Restricted Property, the ownership of which obligates the owner to become a member in the Michaywé Owners Association (hereinafter “Association” or “MOA”). Any owner/member could have filed the instant action since all owners/members have the same rights.
__ All Counts in the Complaint state invalid actions of Defendant MOA under the law and/or governing documents and are therefore unenforceable. All are actions that are beyond the authority of the Defendant, or ultra vires1 — the term used hereinafter.
__ If records are properly kept, the documents providing the facts related to the subject actions of the Defendant should be in Defendant’s files, files of Defendant’s professionals and/or public record.
__
Damages
__ The damages to the Association and its members from ultra vires actions of the Association are potentially large, but are unknown and unknowable. There is no way to know what conditions would exist today if the ultra vires acts had not occurred. The law, governing documents (CC&Rs, Court Orders, Articles, Bylaws, Policies), members’ motions and other documents that affect and/or bind MOA and its members (hereinafter “governing document set”) provide the “rule of law” for the Association. This governing document set2 provides protections, stability and predictability for the Association and its members. The set also provides cover for the board in making difficult and potentially unpopular decisions.
__ When a pattern of non-adherence occurs, decisions are made for expediency, convenience, bows to pressure from groups, and other unpredictable factors. The organization slides into dysfunction with results that include: services to members are reduced, property values are adversely affected, and reporting to members is not full and accurate. See Exhibit A.
__ The importance of restrictive covenants is stated in Pointe Rosa Homeowners Assn Inc v Julio Cicchini, per curiam of the Court of Appeals, issued September 5, 2006, (Docket No. 267101), citing published cases:
__ "Negative covenants restricting land use are grounded in contract. Mable Cleary Trust v Edward-Marlah Muzyl Trust, 262 Mich App 485, 491; 686 NW2d 770 (2004). A covenant constitutes “a contract created with the intention of enhancing the value of property, and, as such, it is a ‘valuable property right.’” Terrien v Zwit, 467 Mich 56, 71-72; 648 NW2d 602 (2002). Generally, such agreements, when voluntarily and fairly made, “shall be held valid and enforced in the courts.” Id., 71."__ The relief sought is to reverse, declare null and void and never valid, provide interpretation, and/or other corrections. All are equitable, declaratory or injunctive, or combination thereof. Financial damages are not sought. This is consistent with the Supreme Court opinion in Terrien, et al v Zwit, et al, 467 Mich 56; 648 NW2d 602 (2002):
__ "As we noted in Austin v VanHorn, 245 Mich 344, 347; 222 NW 721 (1929), “the plaintiff’s right to maintain the restrictions is not affected by the extent of the damages he might suffer for their violation.” This all comes down to the well-understood proposition that a breach of a covenant, no matter how minor and no matter how de minimis the damages, can be the subject of enforcement. As this Court said in Oosterhouse v Brummel, 343 Mich 283, 289; 72 NW2d 6 (1955), “‘If the construction of the instrument be clear and the breach clear, then it is not a question of damage, but the mere circumstance of the breach of the covenant affords sufficient ground for the Court to interfere by injunction.’” (Citations omitted.)"__ Note the last sentence re “not a question of damage” and “Court to interfere by injunction”.
__ Plaintiff does not seek monetary damages; only seeks to correct some of the ultra vires acts of the Association that have been foisted on the Association and its members — the owners of property units in the Michaywé Restricted Property, and help to establish “rule of law” for the members’ benefit.
__
Board Members are NOT Defendants.
__ The only Defendant is MOA. Prior and current board members are not presently named as defendants. The purpose of the lawsuit is to correct the actions of the Association. After discovery is complete, Plaintiff may deem it necessary to add additional defendants if, and only if, it benefits the Association as a whole.
__ Defendant presents arguments and law based on board members being named defendants, which is not applicable at this time. Such arguments tend only to misdirect the issues by improperly reframing them away from actions of the Association to actions of individual board members. Defendant's Motion and Plaintiff’s response thereto illustrate the attempt to improperly reframe this lawsuit and misdirect the arguments.
__
Current Board has a Dilemma.
__ As claimed by the Defendant, the board acted upon advice of counsel. Suppose that counsel's advice is/was wrong in that the Association actions are/were ultra vires. If the board seeks a second opinion from another attorney who advises that the first attorney's opinion is wrong, then what does the board do with the conflicting opinions?
__The logical answer appears to be that a third opinion — from the circuit court — is required.
__________
1 From the Merriam-Webster's Dictionary of Law ©1996, the definition is “beyond the scope or in excess of legal power or authority (as of a corporation)”.
2 This is a difficult set of documents for volunteer board members to understand and apply. Volunteer directors of an owners association just may not have the required expertise. See DiLorenzo, infra at 2. It is not surprising the actions of the Association do not conform to the governing document set. Blindly following the conclusions from an attorney does not meet the requirements in case law. See Resolution Trust v Rahn, infra.
__Several times Plaintiff has suggested to different MOA boards that the board appoint the vice president to study and understand the documents. No such was taken by any board. Having a committee of the membership for such purpose is part of previous Article IX in the Bylaws, which was improperly repealed by the board in 2001. Reinstating Article IX by order of this court is Count I in the Complaint in the instant case. See Exhibit A, ¶31.
Attachment B
OBLIGATIONS OF THE ASSOCIATION AND
THE ASSOCIATION’S ATTORNEY
OBLIGATIONS OF THE ASSOCIATION AND
THE ASSOCIATION’S ATTORNEY
A. ASSOCIATION IS THE CLIENT
__As defined in the restrictive covenants for the Michaywé Restricted Property, each owner automatically becomes a mandatory member of the Association. The Association exists to serve the members by providing services to members and performing other duties as defined in law and the governing documents. As such, legal and valid actions of the Association serve the interests of all members equally and may create obligations equally for the members, who are the owners of property in the Michaywé Restricted Property as defined in the restrictive covenants.
__ With regard to representation by an attorney, the Association is the client as defined in Prentis Family Foundation v Barbara Ann Karmanos Cancer Institute, 266 Mich App 39; 698 NW2d 900 (2005), which states in part:
__ “... when an attorney is hired to represent a corporation, his client is the corporation rather than the shareholders. Scott v Green, 140 Mich App 384, 400; 364 NW2d 709 (1985) (Kirwan, J., concurring) (explicitly adopted by the majority at 386), citing Fassihi v Sommers, Schwartz, Silver, Schwartz & Tyler, PC, 107 Mich App 509, 514; 309 NW2d 645 (1981). See also Macomb Co Prosecutor v Murphy, 233 Mich App 372, 386; 592 NW2d 745 (1999) (citing MRPC 1.13[a]), reversed on other grounds 464 Mich 149 (2001). Although an attorney must necessarily communicate with a corporation's human agents to effectively represent the corporation, Diversified Industries, Inc v Meredith, 572 F2d 596, 602 (CA 8, 1977), the purpose of the communication is representation of the corporation, not the agents themselves."
__MRPC 1.13[a] states:
“Rule 1.13 Organization as Client.
__ (a) A lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders, or other constituents. ”
B. FIDUCIARY DUTY OF DIRECTORS
__For the Association, the agents for communications with the Association’s attorney are the board of directors, or a person so designated by the board. Upon information and belief, the agent for the Association for the instant case is the President of the Association who is elected by the board.
__ Each board member has a fiduciary duty under the Michigan Nonprofit Corporation Act:
“450.2541 Director or officer; discharge of duties; compliance with § 451.1207; liability of volunteer director; action against director or officer for failure to perform duties.__ As one court has stated (Gearheart Industries v. Smith International, 741 F.2d 707, 719 (5th Cir. 1984)):
__ Sec. 541. (1) A director or an officer shall discharge the duties of that position in good faith and with that degree of diligence, care, and skill which an ordinarily prudent person would exercise under similar circumstances in a like position. In discharging the duties, a director or an officer, when acting in good faith, may rely upon the opinion of counsel for the corporation, upon the report of an independent appraiser selected with reasonable care by the board, or upon financial statements of the corporation represented to the director or officer as correct by the president or the officer of the corporation having charge of its books or account, or as stated in a written report by an independent public or certified public accountant or firm of accountants fairly to reflect the financial condition of the corporation.”
__ “Three broad duties stem from the fiduciary status of corporate directors: namely, the duties of obedience, loyalty, and due care. The duty of obedience requires a director to avoid committing...acts beyond the scope of the powers of a corporation as defined by its charter or the laws of the state of incorporation ... The duty of loyalty dictates that a director must act in good faith and must not allow his personal interest to prevail over the interests of the corporation. ...[T]he duty of care requires a director to be diligent and prudent in managing the corporation’s affairs.”__ Many legal scholars and writers, including ones from Michigan, have expanded on the above general requirements to more fully analyze and define the three major components: duty of care; duty of loyalty; and duty of obedience.
__ Consequently, the board collectively and each of the board members are obligated to only take actions that are valid under the law and the governing documents. A corollary is that the they are obligated to correct any prior actions that are invalid under the law and the governing documents.
C. OBLIGATIONS ON THE ASSOCIATION’S ATTORNEY
__There are similar obligations on the attorney for the Association. See for example, MCR Rule 2.114 Signatures of Attorneys and Parties; Verification; Effect; Sanctions which places stringent obligations on parties signing the pleadings. The Michigan Rules for Professional Conduct also place strong requirements in Rule 3.3 Candor Toward the Tribunal including not making “a false statement of material fact or law” and against a failure “to disclose to a tribunal controlling legal authority in the jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel”. One of the Comments on Rule 3.3 states:
“Misleading Legal Argument__ This is consistent with the Association serving its members by insisting on actions that are valid under the law and governing documents.
__ Legal argument based on a knowingly false representation of law constitutes dishonesty toward the tribunal. A lawyer is not required to make a disinterested exposition of the law, but must recognize the existence of pertinent legal authorities. Furthermore, as stated in paragraph (a)(3), an advocate has a duty to disclose directly controlling adverse authority in the jurisdiction which has not been disclosed by the opposing party. The underlying concept is that legal argument is a discussion seeking to determine the legal premises properly applicable to the case.”__
D. SUMMARY OF PROTECTIONS FOR THE INTERESTS OF THE
INDIVIDUAL MEMBERS OF THE ASSOCIATION
__Since the members’ interest in the instant lawsuit are those defined in valid governing documents and valid actions of the Association, those interests should be adequately represented by the interests of the parties and the various requirements on the agents of the association and the Association’s attorney. Moreover, this representation ensures that the members’ interests are identically and equally represented.
__ The related-party aspects are also illustrated by prior involvement of some of the Applicant Intervenors in the Association’s affairs. Five are prior board members: Renton, Hees, Scott, Christie and Buckley. Two ran for the board in 2006 along with attorney Blumberg and were defeated by current board members Latuszek, Rigney and Yodzevicis by a vote of approximately 475 to 310.
__ The interests of Association members in actions of the Association adhering to the law and governing documents are represented by the interests of the Association acting through its board and the Association’s attorney. The Association’s attorney is paid from Association funds which are provided by dues paid by members — in this instant case by the Plaintiff, the Applicant Intervenors, and other members. In a very real sense, the Association’s attorney is representing the interests of all members including those of the Plaintiff and the Applicant Intervenors in assisting and advising the Association to conduct its affairs in adherence to the law and governing documents.
Attachment C
Community Legal Resources
220 Bagley · Suite 900 · Detroit · Michigan · 48226-1498
Phone: 313/964-4130 · Fax: 313/964-1192
Community Legal Resources
220 Bagley · Suite 900 · Detroit · Michigan · 48226-1498
Phone: 313/964-4130 · Fax: 313/964-1192
What are the Legal Duties of a Nonprofit’s Board of Directors?
Prepared by Community Legal Resources’ staff, with assistance from
Christopher J. Dine and Randolph S. Perry of Bodman LLP
Prepared by Community Legal Resources’ staff, with assistance from
Christopher J. Dine and Randolph S. Perry of Bodman LLP
__As the governing body of the organization, a nonprofit’s board of directors has a number of practical responsibilities. The board is responsible for defining the mission of the organization, adopting policies for the organization to implement, hiring and evaluating the performance of the chief executive, and overseeing the financial health of the organization — and that’s just for starters. On a more basic level, the board of directors is legally responsible for the actions of the nonprofit.
__There are three fundamental legal duties that all board members must follow. These three duties, commonly known as fiduciary duties, apply to everything that the board of directors does. Board members must keep these duties in mind when making decisions or taking action for the nonprofit. If they fail to do so, they could be held liable for any negative consequences of their actions.
- Duty of Care
__ The duty of care is often defined as “the amount of care that an ordinarily prudent person would exercise in a like position and under similar circumstances." In everyday terms, this means that a board member must exercise reasonable care when he or she makes a decision for the nonprofit.
__ In order to meet the reasonable care standard, board members must take an active and informed role in decision-making. They should be sure to attend board meetings on a regular basis, and be actively involved in those meetings. They must ask questions about matters that are unclear, or if they feel they need more information. While they can rely, in part, on recommendations and information provided by others (including committees, outside professionals and knowledgeable staff members), they must make independent decisions based on that information.
- Duty of Loyalty
__ All directors owe a duty of loyalty to the organization. The duty of loyalty requires a board member to keep the best interests of the organization in mind at all times when making decisions on the behalf of the organization. A board member must never put personal priorities or opportunities ahead of the organization’s interests. To comply with the duty of loyalty, directors must be sure that they are acting with the organization’s interests in mind, not their own.
__ For example, in the case of a proposed transaction between the organization and a director (or if the director has another significant interest), the interest must be disclosed and the transaction should be approved by a majority of the non-interested directors. Similarly, if a director learns of an opportunity that may be of interest to both the organization and the director personally, the director must first offer the opportunity to the organization. To help avoid conflicts of interest, the board should adopt and follow a conflict of interest policy that addresses these issues.
- Duty of Obedience
__ The duty of obedience, which is sometimes considered part of the duty of due care, requires board members to be faithful to the organization's mission. Their actions must be consistent with the organization’s mission statement, Articles of Incorporation, bylaws, and tax-exemption documentation. The nonprofit’s central goals must guide all board decisions. In addition, board members must also comply with all applicable laws and regulations.__
__ To ensure obedience to the organization’s mission, board members must be knowledgeable about and comfortable with the mission. Before joining a board, potential members must familiarize themselves with the mission statement, organizing documents, and programs. These documents should also be revisited on a regular basis, to guard against “mission drift” (or to revise the mission statement when appropriate). Board members must also become familiar with the basic laws and regulations affecting the organization (tax-exemption, fundraising, employment, etc.), and have a strategy in place for complying with them. While this strategy may involve the use of experts and staff members, the ultimate responsibility for compliance rests with the board of directors.
© 2003 Community Legal Resources
__For more information about the legal duties of board members,
contact Community Legal Resources at 313/964-4130, or by e-mail at clr@michiganlegal.org
- History:xx
- 2008 Apr 05 — Initial Post
- Links:xxLetter to MOA Board re Nordeen v MOA at [http://swagmanmwpoa.blogspot.com/2008/04/letter-to-moa-board-re-nordeen-v-moa.html]
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