MAINTAINING ACCURATE CORPORATE MINUTES CREATES PROTECTION UNDER THE BUSINESS JUDGMENT RULE

by Grant W. Kehres* | Posted 09/02/2014

Over the past decade, Florida Courts have transitioned into adopting the Business Judgment Rule. The Business Judgment Rule creates a layer of protection for corporate directors and protects a director or board member against personal liability lawsuits in the event that a director(s) makes a decision which leads to a lawsuit.

The Business Judgment Rule[1], as applied by several Florida Courts[2], provides that a corporate director is protected against personal liability lawsuits resulting from the director’s decision, as long as the decision of the director is made within the scope of his or her authority and that decision is reasonable. The question, then, is what makes a decision reasonable, and thus a protected decision under the Business Judgment Rule.

In Tiffany Plaza Condo. Ass’n v. Spencer, a Condominium Association sought to assess fees to all condominium unit owners for their prorated cost of constructing a rock revetment in a beachfront area defined as a common element of the condominium. At an annual meeting of the Condominium Association, the Association voted on whether to assess these fees to the owners, a measure which passed. This annual meeting included the preparation of corporate minutes, documenting the vote approving the measure.

A unit-owner sued to prevent collection of fees by the Association, arguing that the revetment was not an “alteration or improvement of a common element,” the only type of assessments to common elements that were permitted under the Declaration of Condominium, the rules governing the Condominium Association’s actions.

The Court, in reaching its decision, applied the Business Judgment Rule and determined that the Association is protected against the owner’s lawsuit, without deciding whether the rock revetment was an alteration or improvement. The Court explicitly stated that it did not matter whether the construction of the rock revetment was actually an improvement or necessary to protect the beachfront from erosion or damages, but whether the Condominium Association’s determination was reasonable.

Ultimately, the Condominium Association was awarded a complete defense under the Business Judgment Rule due in large part to the corporate minutes[3], which documented the Condominium Association’s decision process and its official vote on the matter. Preparation of corporate minutes are incredibly important and necessary, and in the event that a director or board members of a Corporation are sued, the corporate minutes can be used to show that the decision process and to illustrate that sound judgment took place. By keeping corporate minutes up to date and accurate, corporate directors and board members are often protected from personal liability lawsuits.

Our office routinely assists corporate clients with compliance, corporate formation and other business law issues.

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[1] Florida case law provides four elements which must be present for the business judgment rule to act as a shield to director liability:  (a) the decision under review must be a business decision; (b)  the director must not receive a personal benefit from the transaction ; (c) the director must exercise due care; and (d) the director must exercise good faith.  F.D.I.C. v. Stahl, 854 F. Supp. 1565, 1570-1571 (S.D. Fla. 1994).

[2] Hollywood Towers Condominium Ass’n v. Hampton, 40 So. 3d 784, 787 (Fla. 4th Dist. Ct. App.  2010);

Farrington v. Casa Solana Condo. Ass’n, 517 So. 2d 70, 72 (Fla. 3d Dist. Ct. App. 1987);

Tiffany Plaza Condo. Ass’n v. Spencer, 416 So. 2d 823, 826 (Fla. 2d Dist. Ct. App. 1982.

[3] Section 607.0701 of the Florida Statutes requires that all corporations conduct an annual shareholder meeting. The time and place for an annual shareholder meeting is mandated in a corporation’s bylaws, adopted by the corporation when it was formed.

Section 607.1601 of the Florida Statutes requires that minutes of all corporate meetings be prepared and kept as part of the corporation’s permanent records. Subsection (4)(d) specifically mandates that minutes of all shareholders’ meetings be kept by the corporation for the prior three years.

 


*Grant Kehres is Board Certified by the Florida Bar Board of Legal Specialization as a Real Estate Law Specialist.  He holds a doctorate in jurisprudence from Vanderbilt University, an MBA (finance) from Babson College and a dual undergraduate degree in Investments and Economics from Babson College.  Admitted to The Florida Bar in 1978, he has handled more than 10,000 closings for more than 8,000 clients.  For more information on our services and what distinguishes our office from other law firms and title companies, call (561) 392-5200 or e-mail us at info@bocaclosings.com.

 


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