On December 16, 2011, the Iowa Supreme Court published its opinion in Robert Oberbillig et al. v. West Grand Towers Condominium Association, click here for the opinion. The case involved a legal question regarding whether the business judgment rule applies to actions of the board in a nonprofit, condominium owners association.
In reaching its decision, the Iowa Supreme Court provided a brief summary of the business judgement rule in Iowa. The court acknowledged, among other things:
The heart of the business judgment rule is judicial deference to business decisions by corporate directors … The business judgment rule applies when directors act in good faith in making a business decision, when the decision is reasonably prudent, and when the directors believe it to be in the corporate interest …
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The business judgment rule is usually applied as a defense to claims a director is personally liable for corporate actions. However, [it has also been used to uphold the actions of a board in an organization] over the objection of some of its members.
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We have noted the purpose of the business judgment rule is to severely limit second guessing of business decisions which have been made by those whom the corporation has chosen to make them.
The Iowa Supreme Court then cited several courts across the country that have applied the business judgment rule to board actions in condominiums and/or homeowners associations. Ultimately, the Iowa Supreme Court held the business judgment rule can apply to such nonprofit organizations in Iowa and it further held that the rule applied to the facts of the case, and therefore, the Court upheld the challenged decisions of the condominium association’s board.
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