IS THE MANAGING AGENT A FIDUCIARY TO THE ASSOCIATION OR NOT?

A recent Tennessee case analyzed the question of the existence of a fiduciary relationship between the management company and the Association.  A person who occupies the fiduciary or relationship to an entity bears much more legal responsibility than one who is merely a party to a contract.  In the Tennessee case in question, the Court explained “that a fiduciary relationship is not merely a relationship of mutual trust and confidence. Rather it is a relationship where confidence is placed by one in the other and the recipient of that confidence is the dominant personality, with the ability, because of the confidence, to influence and exercise dominion and control over the weaker or dominated party.” The question becomes more difficult because the relationship between the managing agent and the Association may vary depending upon the terms of the management agreement or other relationship established between the parties. The problems arises in the context of analyzing this issue in that the Board of Directors ultimately has the responsibility to manage and maintain the Condominium development and has ultimate authority as to how that development will work and operate.  However, the management company is in a very close and sometimes confidential relationship with the Board of Directors in making decisions concerning the operation of the Association and is privy on many occasions to privileged information including the advice and counsel of the attorney for an Association which, on occasion, has been the subject matter of discussion concerning whether the managing agent is protected by the attorney-client privilege in terms of not being required to disclose information provided to it by the attorney for the Association.

Obviously, the problem also arises from the hybrid of responsibilities of the managing agent which includes clearly, merely following the dictates of the Board of Directors to on the other hand letting contracts on behalf of the Association, making decisions regarding the prosecution of collections and bylaw enforcement and otherwise handling the day to day affairs of the Association subject to the ultimate approval and/or confirmation of the Board of Directors.

Also, the fact that the management company has an independent contractual relationship with the Association through typically a management contract beclouds the issue because it shows a degree of independence on the part of the managing agent and/or management company particularly when the management company represents a multitude of community associations as opposed to one Association to which it has its ultimate and only responsibility.  What can be said, however, is that the closeness by which the management company operates on behalf of the Association is a factor in considering the fiduciary responsibility owed to the Association by the managing agent. Indeed, the managing agent should be held accountable for any actions which are detrimental to the interests of the Association because of information to which it becomes privy.  For example, the management company should be under a responsibility not to disclose any information to any third party irrespective of whether the attorney-client privilege has been waived by the attendance of the managing agent at a meeting of the Board of Directors with counsel present.  The managing agent should, therefore, be clothed with this fiduciary responsibility of confidence and confidentiality and to that extent should be held to a standard higher than that of an independent contractor and more analogous to an employee of a principal where a fiduciary relationship is owed. On the other hand, if the management company’s responsibilities are limited in the management agreement, such as bidding contracts or merely handling collections, the managing agent may not have the same degree of fiduciary responsibility, but once again, even in the case of collection matters, the management company should be operating in the best interest of the Association and not in its own best interests.  It would appear that the close relationship between the management company and the Association, particularly in the area of trust and confidence, and, particularly, when great responsibility is delegated by contract to the management should result in the management company being held accountable as a fiduciary to the Association.

In summary, it may not be possible to universally and categorically label a management company as a fiduciary and it may have to be determined on a case by case basis depending upon the terms and conditions of the management contract and the extent of reliance and/or trust bestowed upon the management company by the Board of Directors either by contract or otherwise.  Moreover, Courts should look into this issue on a more regular basis as management companies are clearly a key component to the successful operation of the Association and if they are not held to a higher standard of responsibility, but merely a standard resulting in a claim for breach of contract, it may not adequately protect the Association in its day to day affairs.

 

ROBERT M. MEISNER, founding member of the Bingham Farms law firm of Meisner & Associates, P.C. is also of counsel to Eisinger, Brown, Lewis & Frankel in Hollywood, Florida.  Robert Meisner was twice selected to the Top Michigan Super Lawyers for 2009 and in 2010, and designated as a 2010 top Metro Detroit attorney in the field of Condominium Law by dbusiness Journal. He is co-draftsperson of the 1978 Michigan Condominium Act and the 2001 Amendments thereto. He is legal counsel to numerous community associations and developers. Mr. Meisner is also Michigan’s first inductee into CAI’s College of Community Association Lawyers (CCAL. Mr. Meisner authored Condo Living, A Survival Guide to Buying, Owning and Selling a Condominium; as well as Condominium Operation: Getting Started and Staying on the Right Track, and other articles; he is a featured newspaper columnist with the Observer & Eccentric newspaper. Mr. Meisner has lectured before many professional education programs. He is an adjunct professor of law for Cooley Law School where he teaches community association and condominium law. He has been an instructor of condominium operation courses for over 30 years at colleges and/or universities in the State of Michigan. He is a facilitative mediator, trained in the Michigan Supreme Court’s alternate dispute resolution rules and certified by the Oakland County Bar Association to conduct facilitative mediations. Mr. Meisner is a practicing attorney of 40 years, holding a B.A. from the University of Michigan, a J.D. from the University of Michigan Law School and a licensed real estate broker.
 

Meisner & Associates, P.C.

(248) 644-4433

bmeisner@meisner-associates.com