344 P.3d 548
Or. Ct. App.2015Background
- WSB Investments bought a 12/12 timeshare interest in the Residence Club at Pronghorn Villas and became a member of the nonprofit homeowners association (Res Club) governed by a five‑member board appointed initially by the developer (Pronghorn Development/Hix).
- The developer and board faced financial distress; instead of buying common furnishings as the Declaration required, they used a sale‑leaseback and sublease scheme with third parties and amended the Declaration (without required member approval) to permit leasing.
- The developer repeatedly failed to pay assessments for unsold units; the board frequently allocated large, poorly‑explained resort charges (including unidentified “labor/other” line items) to the Res Club.
- Board members used Res Club reserve funds to cover operating expenses (contrary to the bylaws/statute) and Hix transferred $85,000 from Res Club reserves to the separate golf club to cover payroll.
- The board never held the required turnover election to add a nondeclarant director; some directors served on multiple resort entities.
- Plaintiff sued directors for breach of contract, breach of fiduciary duty, negligent misrepresentation, unjust enrichment, and declaratory relief; the trial court granted summary judgment for defendants on all claims. The Court of Appeals reversed in part on fiduciary‑duty claims, remanding limited issues for trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether directors are liable under ORS 65.369 for breaches of duties (gross negligence/intentional misconduct required) | Gross negligence is a jury question; evidence shows directors acted with gross negligence or intentional misconduct | ORS 65.369 limits liability of uncompensated nonprofit directors to gross negligence or intentional misconduct, which plaintiff cannot show as a matter of law | Court treated plaintiff’s claim under ORS 65.357/65.369 and held liability requires gross negligence or intentional misconduct; summary judgment only proper where record lacks evidence of gross negligence/intentional misconduct |
| Use of reserve funds for operating expenses and transfer to golf club ($85,000) | Directors misused reserves in violation of bylaws; evidence supports reckless disregard / intentional misconduct | Actions were reasonable business decisions or otherwise insufficient to show gross negligence | Reversed summary judgment: evidence could support gross negligence/intentional misconduct as to misuse of reserves (all defendants) and $85,000 transfer (Hix and Denney) |
| Overcharging/loading resort expenses onto Res Club | Board knowingly allocated disproportionate/unidentified charges to Res Club; some directors knew and did nothing | Post‑allocation accountant reports show allocations were reasonable; no gross negligence | Reversed summary judgment as to Hix, Walley, Denney, Clark — record permits inference of reckless disregard; affirmed as to Fulgham (no evidence of involvement) |
| Failure to hold turnover election to add nondeclarant director | Declaration required election and adding nondeclarant director; failure was a clear, unambiguous violation supporting gross negligence | Given circumstances, decision not to hold election was not gross negligence | Reversed summary judgment as to all defendants — factfinder could find reckless disregard of Declaration’s unambiguous requirement |
Key Cases Cited
- Goodsell v. Eagle‑Air Estates Homeowners Assn., 249 Or. App. 639 (recognizing ORS 65.357 duties for uncompensated nonprofit directors)
- Robinson v. Lamb’s Wilsonville Thriftway, 332 Or. 453 (summary judgment standard)
- Howard v. Chimps, Inc., 251 Or. App. 636 (gross negligence defined as reckless disregard/indifference)
- Bernards v. Summit Real Estate Mgmt., Inc., 229 Or. App. 357 (duty to sue not imposed where success would yield little or no net value)
- Citibank South Dakota v. Santoro, 210 Or. App. 344 (summary‑judgment record includes evidence submitted in support of and in opposition to cross motions)