California Court Dismisses Homeowner’s Claims Against HOA Directors

UNREPORTED California Appellate Court decision (December 7, 2015).

In this case, a condominium owner sued her homeowners association, its property management company, and its directors in their individual capacities for damage caused to her condominium unit that the owner alleged resulted from improper maintenance or repair of common areas. The owner’s action was based on claims that the association and the directors breached fiduciary duties owed to the owner. Factually, despite having a duty to maintain the common areas, the association failed to have necessary waterproofing work done and as a result, the owner’s property was damaged as a result of water intrusion. The trial court dismissed the owner’s claims against the individual directors after ruling that their personal involvement was only as board members, and board members do not personally have a fiduciary duty to the homeowners. The homeowner appealed the Court’s dismissal of the individual directors.

On review, the appellate court commented that, when owners in common interest developments seek to litigate ordinary maintenance decisions that are entrusted to the discretion of an association’s board of directors, the courts generally defer to the board’s decision making. The court stated that under established law, there is a presumption that directors’ decisions are based on “sound business judgment” and that presumption can only be rebutted by a factual showing of either fraud, bad faith, gross overreaching, or an reasonable failure to investigate material facts. Thus, to hold directors personally liable, there must be a showing of tortious conduct by the individual directors, not conduct that relates to their status as officers or directors of the association. In affirming the trial court’s decision, the appellate court found that, because of the presumption that the directors’ decisions were based on sound business judgment and there was no showing of facts demonstrating that the individuals had engaged in fraud, bad, faith or gross overreaching, the owner did not state a valid claim for breach of fiduciary duties against the directors in their individual capacities.

See case decision: Brenner_v._Peet-Thompson_(Ca