February 2023

THIS ARTICLE WILL SELF-DESTRUCT IN FIVE (5) SECONDS: Understanding Confidentiality in Community Associations

By Jonathan H. Katz, Esq. Hill Wallack LLP

W hat comes to mind when you hear the term confidentiality? For some, it evokes spies and briefcases marked TOP SECRET like in the Mission: Impossible movies (or television show for those older readers). For others, the term suggests personal iden tifiable information (PII) like social security numbers or bank account information, which in today’s world is increasingly a target for criminals or scammers. However, at its core, confidentiality refers to secret or private information of nature, including financial, legal, medical, or otherwise. Before we specifically discuss confidentiality in the communi ty association setting, let’s discuss the basic corporate structure and how that relates to community associations. Directors or trustees of a corporation are considered to have a fiduciary relationship with the corporation and its shareholders/mem bers. As such, the directors’ fiduciary relationship to those members requires adherence and compliance with that cor poration’s founding/governing documents. These same tenets also apply to community associations. An association’s governing documents constitute a contract between the corporation (the association) and its members. An association’s board of directors has a fiduciary obligation to both the association itself and to the owners/members. That means that the directors must act in good faith and promote the health, safety, and welfare of the entire community (known as the duty of care). Likewise, directors must make decisions in the best interests of the association as well as for the protection

of the whole association and its association’s members, and not in an arbitrary or discriminatory fashion or for the benefit of any particular director (known as a duty of loyalty). That leads us to confidentiality. Unlike the duties of care and loyalty, no clear statutory authority imposes a duty of confiden tiality on an association board or its directors. Likewise, there is limited case law in New Jersey regarding confidentiality issues in the community association context. However, an implied component of the duty of loyalty is the responsibility of directors to ensure confidentiality, specifically, to protect and maintain the confidentiality of the association’s books, records, and other information (financial and otherwise). It includes information that may be subject to an attorney-client privilege. Many courts have held that a board member’s right to learn of privileged information comes with the obligation to maintain the confidentiality of that communication, as the privilege (and the right to waive that privilege) belongs to the association and not the individual board member. There is some guidance regarding a board member’s duty of confidentiality found in the Community Association Institute Model Code of Ethics for Community Association Board Members, which provides that board members should not: • Reveal confidential information provided by contractors or share information with those bidding for association contracts unless specifically authorized by the board; • Use their positions or decision-making authority for per sonal gain or to seek advantage over another owner or CONT I NU E S ON PAGE 16

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