WSB Investment, LLC v. Pronghorn Development Company, LLC

Under ORS 65.369(1), gross negligence or intentional misconduct must be shown to hold a defendant nonprofit director liable for any breach of fiduciary duty under ORS 65.357(1). Summary judgment may be avoided in cases where breach of the statutory duty of loyalty is shown by a violation of duties contained in the declaration and bylaws of a homeowners association.

Plaintiff WSB Investments, LLC (WSB) owns an interest in a timeshare unit at the Residence Club at Pronghorn Villas Condominiums (the resort), making him a member of the associated nonprofit homeowners association (Association). An uncompensated board of directors comprised of five appointed members (Hix, Denney, Walley, Clark and Fulgham) governed the Association. When the resort began facing financial difficulties, decisions by members of the board lead WSB to sue the board for omissions breach of contract, breach of fiduciary duty, negligent misrepresentation, unjust enrichment, and for declaratory relief and an accounting. Both parties moved for summary judgment; the trial court granted summary judgment for the respondents on all claims. WSB appealed grant of respondents’ summary judgment on all claims. The Court affirmed summary judgment for WSB’s claims of breach of contract,unjust enrichment, negligent misrepresentation, and for declaratory relief and an accounting. The Court also held that WSB’s allegations of breach of fiduciary duty under ORS 65.357 were reviewable and held as follows: reversed regarding misuse of reserve funds; affirmed as to Walley, Clark and Fulghum but reversed as to Hix and Denney regarding the transfer of Association funds; affirmed as to Fulgham but reversed as to Hix, Walley, Denney and Clark regarding expenses incurred by the Association; affirmed regarding the board members’ failure to initiate a collection action; reversed as to all board members except Fulghum regarding leasing common furnishings reversed regarding the board’s failure to hold an election; affirmed regarding board members’ conflict of interest; and affirmed regarding the failure to ensure that buildings completed. Reversed in part and remanded.