Former HOA Board Member Liable For Damages Caused to HOA While Serving as a Director

UNPUBLISHED U.S. District Court, Eastern District of Texas, decision (June 5, 2015).

An HOA member served as an officer and a director of the homeowners’ association from January 2006 to July 2007. Following his service on the association’s board, the association brought suit against the member to recover damages for his actions while serving as a director for the HOA in the following respects: (1) causing the association to incur attorney’s fees relating to an improper attempt to deny a homeowner access to certain documents; (2) knowingly seeking and receiving improper personal benefits as a director in the form of reimbursement of personal expenses; and (3) breach of fiduciary duties by knowingly seeking and receiving money as a personal benefit from a third-party contractor that was compensated by the HOA.

The trial court granted the HOA a judgment against the member in the amount of $30,177.00, together with post-judgment interest and costs. Following the entry of the judgment by the trial court, the member filed a Chapter 7 bankruptcy seek to prevent the HOA from enforcing the judgment against him. The HOA then filed an action in the bankruptcy court seeking a determination that the judgment was not dischargeable in the bankruptcy because it resulted from actions by the member which constituted a “defalcation” committed while he was acting as a fiduciary, in accordance with Section 523(a)(4) of the Bankruptcy Code. Said Section provides that a debtor seeking relief in bankruptcy will not receive a discharge of debts that were incurred “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” The bankruptcy court agreed with the HOA and ruled that the judgment in favor of the HOA was not dischargeable as a defalcation committed by the member while he was acting as a fiduciary of the HOA. The member then appealed the decision rendered by the bankruptcy court.

The appellate court found that each of the actions described above that were committed by the member constituted defalcation within the meaning of Section 523(a)(4) of the Bankruptcy Code and were committed at a time when the member was an officer and director of the HOA, and thus owed fiduciary duties to the association. As such, the judgment in favor of the association resulted from defalcation in a fiduciary capacity and was nondischargeable. Accordingly, the trial court’s decision was affirmed.

See case decision: Whitaker_v._Moroney_Farms_Ho