CAI-NJ March 2017

THE BUSINESS JUDGMENT RULE

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How Individual Board Members Can Avoid Personal Liability For Actions of the Collective Board By Gene Markin, Esq. Stark & Stark

L ike directors of corporations, association board members enjoy various legal protections in the execution of their duties. First and foremost is the business judgment rule, which shields Board members acting in good faith from personal liability. Only when the actions of the board are in contravention of the association’s governing documents or

the Condominium Act, or are fraudulent, unconscionable or self-serving does personal liability attach. Generally, as long as board members act reasonably and in good faith to make informed decisions, they will be insulated from personal liabil- ity should those decisions turn out bad or be challenged.

1. BOARD MEMBERS’ STANDARD OF CARE Since condominium associations are organized as non-profit corporations under N.J.S.A. 15A:1-1 et seq., the New Jersey Nonprofit Corporation Act is quite instructive on a board member’s standard of care: Trustees and members of any committee designated by the board shall discharge their duties in good faith and with that degree of diligence, care and skill which ordinary, prudent persons would exercise under similar circumstances in like positions. [N.J.S.A. 15A:6-14.] Accordingly, the overriding scheme of the Condominium Act requires board members, as fiduciaries, to make decisions for the protection of the whole condominium and each of the constituent owners; not to act discriminatorily,

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