Does the Business-Judgment Rule Require Finding Reasonableness? An Illinois Appellate Court applied its corporate business-judgment rule to a derivative suit brought by unit owners on behalf of the condominium association.As discussed in , the business-judgment rule restricts a court’s ability to review the substance of a decision made by the condominium association’s board of directors. discusses condominium directors’ fiduciary duty to “exercise ordinary care in performing their duties and to act reasonably and in good faith.” 934 P.2d 669, 680–81 (Wash. The court appears to conflate the two differing standards by stating the duty as such, and by concluding “whether or not the business judgment rule should be applied to property owners associations, the decisions of these associations must be reasonable.” at 681.
Is the burden of proving unreasonableness a fair burden to put on one unit owner?On appeal, the Fourth District held the board of directors must demonstrate “reasonableness” when the validity of promulgated rules is challenged or when a board refuses an owner’s action where the board has the power to grant or deny the action. Because Hidden Harbour failed to demonstrate its decision to deny the drilling of a well was reasonably related to its concerns, the Fourth District affirmed the trial court’s ruling. All but seven unit owners paid the special assessment. The court of appeals, therefore, decided the more appropriate standard was the one of limited judicial review.The remaining unit owners secured an injunction restraining the association from asserting a lien or imposing other sanctions on the nonpaying owners. New York is one of the few jurisdictions in which an appellate court went the extra mile to explain what the reasonableness standard is, what the business-judgment rule is, and why one is more beneficial than the other.The two most readily recognizable approaches, the reasonableness standard and the business-judgment rule, share so many characteristics that defenses of one are almost certainly defenses to the other.The minority approach, as prescribed by the , attempts to be a hybrid between the two majority approaches, but may only create an undue burden on the challenging unit owner as opposed to clarifying the standard.