Iowa Supreme Court applies business judgment rule to nonprofit corporations

We don't often see a business judgment rule case emanate from the Iowa Supreme Court, so when one comes along, even in the context of a nonprofit condominium owners' association, I am compelled to comment on it. Oberbillig v. West Grand Towers Condominium Ass'n, 807 N.W.2d 143, 2011 WL 6270701, Iowa, December 16, 2011 (NO. 09-1097).       

The crux of the case was whether the board of directors of the condominium association was correct in approving nonemergency repairs to the association's parking garage.  The pertinent provision of the bylaws declares that 'the board shall not approve any expenditure in excess of Twenty-five Thousand Dollars ($25,000), unless required for emergency repair, protection or operation of the Common Elements or Limited Common Element . . . .'  The plaintiffs, two residents at West Grand Towers, contend that 'emergency' modifies repair and protection and operation.  The Association believes that 'emergency' modifies only repair.  The trial court held for the plaintiffs and the Association appealed.  The Iowa Supreme Court reversed.  The reversal is not based on the Court believing that 'emergency' only modifies 'repair,' although I suspect it does believe that, but upon application of principles that are far more useful.  In essence, the Court concluded that when a bylaw provision is ambiguous, the organizational documents (in this case, the Declaration) grant the board the authority to interpret the bylaws, and if the board's interpretation is reasonable, then the Court will defer to the board's 'interpretation if doing so is consistent with the business judgment rule..

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.