Nonprofit's governing documents dictate scope of director's liability

By Lori Irish Bauman
March 3, 2015

Last week the Oregon Court of Appeals addressed the liability of directors of a nonprofit corporation, reversing summary judgment for directors of a homeowners association on breach of fiduciary duty claims.

In WSB Investments, LLC v. Pronghorn Development Company, LLC, plaintiff was an owner of a timeshare and a member of the HOA that asserted various claims against the directors, including breach of fiduciary duty. In reviewing the trial court's grant of summary judgment, the court discussed the standards for directors' obligations to a nonprofit. While ORS 65.369(1) imposes liability for gross negligence or intentional conduct, the legislature has not defined gross negligence in this context. The court held that, for directors' liability, gross negligence means negligence characterized by near total disregard or indifference to the rights of others or the probable consequence of a course of conduct. The court further held that, while ORS 65.357 states the standard of care of uncompensated directors of a nonprofit, whether those standards have been violated must be determined with reference to the obligations set out in the governing documents.

Accordingly, the court found triable issues of fact as to,among other things, the use of reserve funds for operating expenses and failing to elect new board members in a timely fashion, all in violation of the HOA's governing documents.