Court Says Association’s Actions Were Protected by the “Business Judgment Rule”
New York Supreme Court, Appellate Division decision (October 18, 2017).
In this case homeowners sued their homeowners association and the individual members of the association’s board of directors for damages based on claims of breach of contract and breach of fiduciary duties. Interestingly, the plaintiffs’ claims against the association and the directors were precipitated by conditions that were caused by the plaintiffs.
Factually, the plaintiffs had planted bamboo on their property but it subsequently spread to the property owned by adjacent homeowners and onto common areas of the association’s property. In their complaint, the plaintiffs alleged that they tried to control the spread of the bamboo they had planted but they were not successful. The association then imposed fines on the homeowners as a result of the bamboo infestation they had created. The homeowners subsequently filed their lawsuit against the association and the directors contending that: (i) the fines that had been imposed were unauthorized and excessive; and (ii) the association breached their duties under the governing documents and the directors breached their duties by failing to remediate the problem. The association and the individual directors moved for summary judgment but the trial court denied the motions. Thereafter, the association appealed.
The appellate court stated that when reviewing the actions of a homeowners association, courts must apply the “business judgment rule” and limit its inquiry to: (i) whether the action being scrutinized was authorized; and (ii) whether the action was taken in good faith and in furtherance of the legitimate interests of the association. Applying said standards to the facts of this case, the appellate court determined that the defendants had submitted sufficient evidence to show that the association was authorized to make the decision it made to impose fines on the plaintiffs for not remediating the bamboo infestation rather than taking action to remediate the problem itself and that the decision was made in good faith and in furtherance of the legitimate interests of the association.
Because the plaintiffs had failed to submit evidence that the association had acted in bad faith or that its actions were taken for a purpose other than to address the bamboo infestation that was caused by the plaintiffs, the association was entitled to summary judgment. The appellate court further determined that the individual directors were entitled to summary judgment on the plaintiffs’ claims that the directors had breached their fiduciary duties because the evidence presented to the trial court established that the individual directors had not committed any tortious action outside the scope of their authority as directors.
See case decision: Tucciarone_v._Hamlet_on_Olde_Oyster_Bay_Homeowners_Ass’n_Inc._2017_NY_Slip_Op_7293_(N.Y._App._Div._2017)1