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 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.”
Here are a couple of takeaways from this case. First, the court applied the “doctrine of the last preceding antecedent” in finding that the bylaw provision quoted above was ambiguous. As the Court has observed in prior cases, qualifying words usually only apply to the immediately preceding antecedent. In this case, emergency only applies to repair. The trial court on the other hand interpreted the clause to actually read “emergency repair, emergency protection or emergency operation of the Common Elements or Limited Common Element” and was castigated by the Court for it (“We should not rewrite bylaws in the guise of interpretation.”). Second, the Court refused to construe the ambiguous language against the Association because the developers, not the Association, drafted the Declaration and bylaws. Third, should non-profit and for-profit bylaws now include a provision that grants the board of directors the authority to interpret the bylaws?