Continued from page 25 BOARDS MAY NOT IGNORE CC&RS
In 2002, a dispute arose in the Marquesa at Monarch Beach HOA regarding trees. The CC&Rs limited tree height, and the board invoked the BJR to exempt some palm trees which they felt were not meant to be within that height limit (because it would kill the palm trees). The appellate court in 2008 ruled against the HOA, stating that “the Board’s interpretation of the CC&Rs was inconsistent with the plain meaning of the document and thus not entitled to judicial deference.”
BOARDS CANNOT IGNORE BUILDING CODE VIOLATIONS
In Ritter v. Churchill Condominiums, the board argued the BJR protected its attempt to force a homeowner to repair a building code violation (a newly discovered hole in the common area floor structure separating levels of a high-rise tower). The appellate court in 2008 disagreed, holding that the BJR does not allow boards to ignore common area defects and building code violations.
BOARD INACTION IS NOT DISCRETION
In 2011’s Affan v. Portofino Cove case, a condominium owner had ‒ for six years ‒ suffered repeated sewage floods from the common plumbing. Each time, the HOA repaired the damage
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but never tried to determine and repair the cause. When Affan finally sued, the HOA argued that it was protected by the BJR. The appellate court disagreed, noting that “the Association’s inaction was not the result of any deliberative process.”
ROGUE DIRECTORS ARE NOT PROTECTED
Directors must be careful to make sure they act with board approval. A director who acts without board authorization may not be protected under the BJR, pursuant to the 2016 appellate holding in Palm Springs Villas II HOA v. Parth. In that case the HOA president allegedly made contractual commitments without board authorization, and her motion for summary judgment (granted by the trial court) was overturned by the appellate ruling, finding that she might have been outside the protection of the BJR. Happily for her, she prevailed at trial, but the whole ordeal could have been prevented with clearer board records authorizing her actions.
The BJR’s protection is not unlimited. These cases illustrate that boards cannot ignore the law, governing documents, corporate process, or the problem. That discretion is unreasonable and is not protected. Be smart, be safe, and stay within the safety of the Business Judgment Rule.
—Kelly G. Richardson, Esq., CCAL is a founding Partner of Richardson | Ober LLP, a former President of CAI, and a former CAI-OC Director.
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