Articles Posted in Boards of Directors

Published on:

Director-LiabilityOn September 25, 2017, Governor Brown signed AB 1412 (effective January 1, 2018) which seeks to clarify Civil Code Section 4041 (Annual Notice of Owner Contact Information) and Civil Code Section 5800 (Limitation of Director and Officer Liability).

Under current law, Civil Code Section 4041 requires the Association to solicit, on an annual basis, mailing addresses from the Members for purposes of providing notice.  Members are required to state the primary and secondary addresses to which notices from the Association are to be delivered, among other things.  If no such notice is provided, that Section 4041 provides that the default mailing address for purposes of delivery shall be the Member’s property address within the Association.

The existing version of Civil Code Section 4041 potentially inconveniences non-resident Members because they must annually notify the Association of their current mailing address.  If they fail to do so, Management is then legally obligated to change the Members’ mailing address back to the Members’ Association address.

AB 1412 removes those administrative burdens by stating that the default mailing address shall be the last address provided in writing by the Member to the Association, if any.  Under that circumstance, the Association no longer needs to annually update its Member address records if the Members forget to supply their existing mailing address to the Association.

Civil Code Section 5800 provides liability protections to volunteer Directors and Officers if certain conditions are satisfied (i.e. the act/omission was performed in good faith and within the Director/Officer’s Association duties, etc.).  Current law provides that such protections are only available to Directors/Officers in common interest developments that are exclusively residential.  The protections previously offered by Section 5800 were unavailable to volunteer Directors/Officers in mixed use settings, such as common interest developments with residential and commercial units.

In view of the growing number of common interests developments throughout the state, the California legislature recognized that Section 5800 did not provide liability protection to Directors/Officers in mixed use common interest developments.

As such, AB 1412 seeks to expand the breadth of Civil Code Section 5800 because it now generally applies to volunteer Directors/Officers in mixed use settings.  Such protection is limited to those Directors/Officers who are tenants of a residential separate interest or who own no more than two (2) residential separate interests.

California HOA lawyers AB 1412 will save time and money because the Association is no longer burdened with the duty to update Member address information if a Member fails to provide Management with his or her mailing address. 

Mixed use common interest developments may experience increased Board participation by volunteer Directors/Officers because liability protections are now available under Civil Code Section 5800.

AB 1412 does not address whether volunteer commercial unit owners or Members who own three (3) or more residential units are immune from liability under the same liability protections.  A review of the legislative history for AB 1412, coupled with general principles of statutory construction, suggests that those individuals may be excluded in that regard.

-Blog post authored by TLG Attorney, Kumar S. Raja, Esq.

Published on:

trees-e1497461819768

*Unpublished Case

ISSUE:

Is an HOA Board of Directors (“Board”) entitled to protection under the Business Judgment Rule (“BJR”) when it applies an unambiguous view restriction contained in the governing documents in a manner other than written?

RULE:

No.  In Lingenbrink v. Del Rayo Estates Homeowners Association, 2017 WL 1075062 (“Lingenbrink”), the Court of Appeal concluded the BJR only applies to matters that are within an HOA Board’s discretion.  A Board does not have the discretion to interpret or re-write a restriction where the meaning of the restriction is perfectly clear.

ANALYSIS:

The HOA consists of eighteen (18) “high end” homes in Rancho Santa Fe built on 21 lots, each with sweeping views of the Pacific Ocean.  The CC&Rs contain very specific language that protects each Lot’s view as follows:

“No tree, hedges or other plant shall be so located or allowed to reach a size or height which will interfere with the view from any Lot and, in the event such trees, hedges or other plant materials do reach a height which interferes with the view from another Lot, then the Owner thereof shall cause such tree(s), hedge(s) or other plant material[(]s) to be trimmed or removed as necessary.”

Continue reading

Published on:

*New Case LawBusiness Judgment Rule HOA

Volunteer homeowners association (“HOA”) directors are fiduciaries who are held to high standards of conduct when making decisions or taking actions on behalf of the communities they represent. Sometimes those decisions, which may seem reasonable at the time, ultimately lead to problems for the HOA or its members. If volunteer HOA directors were made personally liable for the consequences of their erroneous decisions, it would be virtually impossible for any HOA to recruit individuals to serve on its board. For this reason, HOA directors are afforded several liability protections under California law.  One of those protections is a legal doctrine known as the “Business Judgment Rule.”

The Business Judgment Rule generally shields directors from personal liability that may result from their erroneous decisions, provided that the decision was made (1) with care, (2) in good faith, and (3) was based upon what the director believed to be in the best interest of the HOA. Making a decision “with care” generally requires that directors exercise reasonable diligence to investigate the issues surrounding the decision so that they are able to act on an informed basis.

But how broad are the protections of the Business Judgment Rule? Does it automatically shield a director who chooses to remain willfully ignorant as to the issues surrounding her actions or the scope of her authority? According to the Court of Appeal in the recent case of Palm Springs Villas II Homeowners Association v. Parth (2016) 248 Cal.App.4th 268, that answer appears to be no… Continue reading

Published on:

Labor-Unions-Preventive-Practices-1024x683On August 27, 2015, the National Labor Relations Board (“NLRB”) published its decision in the Browning-Ferris Industries of California, Inc. case (“BFI Case”). In that case, Browning-Ferris Industries of California, Inc. (“BFI”) retained the services of Leadpoint Business Services (“LBS”) to provide staff to one of BFI’s recycling facilities. The contract between BFI and LBS recognized, and the parties understood, that the personnel staffed by LBS were the employees of LBS. Nevertheless, given the fact that the contract granted BFI with some control over the employees of LBS, the NLRB concluded that BFI was a joint-employer of LBS thereby obligating BFI to comply with federal labor laws.

In adopting a new legal standard for determining joint-employer status, the NLRB emphasized that such a determination should not be based solely on actual control over the employees of another, but the “existence, extent, and object of the putative joint employer’s control.” (Browning-Ferris Industries of California, Inc. (2015) 2015 NLRB No. 672, *12 (Emphasis added).) Otherwise, employers would be able to insulate themselves from their responsibility to comply with federal labor laws. (Id. at p. *21) Accordingly, as long as a company retains (e.g., through the execution of a contract) the authority to control the employees of another, said company shall be given joint employer status. (Id. at p. *2.) This is true even if control is exercised indirectly (e.g., through an intermediary). (Id.)

Many associations retain a community management firm for the purpose of executing the duties of the association. These community management firms in turn employ community managers and support staff to manage these associations. While historically recognized as the employee of the community management firm (and an independent contractor of the association), the BFI Case raises some questions with respect to the nature of the relationship between the employees of a community management firm and the association. Accordingly, associations must be cognizant that a Court may find that it is a joint employer of the community manager (and support staff), notwithstanding the fact that it exercises no direct and immediate control over said manager.

Similarly, associations and management companies must take care when hiring maintenance and service providers for the community.  When managers, committee members, or board members are conducting job walks with a contractor’s employee, reviewing specifications, or receiving invoices, the management company and the association may become joint employers. In Heiman v. Worker’s Compensation Appeals Board, Cal: Court of Appeal, 2nd Appellate Dist., 3rd Div. 2007 (“Heiman”), a community association manager hired an unlicensed and uninsured contractor on behalf of the association to install rain gutters on the condominium buildings.  An employee of the contractor was seriously injured on the first day of the project and sued the contractor, management company, and association for workers’ compensation.  The Court held that the contractor, the association, and the management company were all joint employers because the contractor hired the injured employee, and the management company, as agent of the association, hired the contractor.  The BFI Case seems to affirm this decision.

California HOA laws In order to insulate the association from a possible finding of joint-employer status, the association should ensure that its contract with independent contractors, requires all proper licenses and insurance, adequately sets forth the desired results, and sets forth the level of care and skill to be used in accomplishing the desired results. (See Id. at p. 12 (“mere ‘service under an agreement to accomplish results or to use care and skill in accomplishing results’ is not evidence of an employment, or joint-employment relationship”).) The agreement should also include a provision that requires the contractor to indemnify and hold the association harmless in the event a labor dispute arises.

Blog post authored by TLG attorney, Matthew T. Plaxton.

Published on:

*New Case Lawhoa-renter-fee.jpg

In the landmark case of Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249 (“Lamden“), the California Supreme Court established what is known as the “Rule of Judicial Deference” or “Lamden Rule” that, in sum, requires courts to defer to decisions made by a HOA’s Board of Directors regarding “ordinary maintenance:”

“…We adopt today for California courts a rule of judicial deference to community association board decisionmaking that applies, regardless of an association’s corporate status, when owners in common interest developments seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations’ boards of directors.” (Lamden, at 253.)

However, in a recently published opinion, the Court of Appeals expanded the scope of the Lamden Rule to include additional decisions made by a HOA’s Board, such as those to adopt rules and impose fees on members relating to short-term renters…

Continue reading

Published on:

*New Case LawHOA-parking-structure.jpg

It is not uncommon for a homeowners association (“HOA”) to enter into contractual arrangements with a third party where the rights and responsibilities under that arrangement are between the third party and each of the HOA’s members. Under such circumstances, the HOA’s involvement may be limited solely to collecting fees from the members and passing them on to the third party. Because the HOA (as an entity) is not the beneficiary of the contract, there is uncertainty as to whether the HOA has standing to assert claims against the third party on behalf of the HOA’s members. California Civil Code Section 5980 provides a HOA with standing to initiate legal action “in its own name as the real party in interest and without joining with it the [HOA’s] members” in matters relating to enforcement of the HOA’s governing documents, as well as matters involving or arising out of damage to the common area and/or to a separate interest which the HOA is obligated to maintain or repair. However, there is no statutory provision clearly addressing whether a HOA has such standing in matters pertaining to the rights of the HOA’s members in contracts with third parties.

Fortunately, the recent case of Market Lofts Community Association v. 9th Street Market Lofts, LLC (2014) 222 Cal. App. 4th 924 (“Market Lofts”) provides some guidance on this issue.

Continue reading

Published on:

hoa-committee-meeting.jpg*Asked & Answered

Asked – Our HOA has established several working committees such as Finance and Compliance. Do these committees have to conduct meetings open to the public? Neither one has power to spend money but merely makes recommendations to the Board of Directors.

Answered – No. The provisions of the “Open Meeting Act” (Civil Code §4900) requiring open meetings apply only to “board meetings.” A “board meeting” is defined as “a congregation, at the same time and place, of a sufficient number of directors to establish a quorum of the board, to hear, discuss, or deliberate upon any item of business that is within the authority of the board.” Civil Code §4090(a) (Emphasis added). Therefore, provided that the committee is not comprised of a sufficient number of directors so as to constitute a quorum (typically a majority) of the board, the committee’s meetings are not required to be open to the membership.

As illustrated in your question, most committees are purely advisory in nature and provide their findings/recommendations to the board in an open board meeting. Even where a committee does have some decision-making authority (i.e., to approve homeowner architectural applications or expenditures for an ongoing HOA construction project), an “item of business” contemplated by the Open Meeting Act does not include “actions that the board has validly delegated to…. [a] committee of the board comprising less than a quorum of the board.” Civil Code §4155 (Emphasis added). Therefore, if the board has delegated an action or decision to a committee comprised of less than a quorum of the board, the committee’s decision-making authority would not in itself trigger the Open Meeting Act’s requirements.

hoa laws

Even if your committee is not required to hold open meetings, it may be beneficial for committees with decision-making authority to provide notice to the membership and to post an agenda. Doing so will help prevent claims of impropriety on the part of the committee or the board in situations where a member may object to a decision or action by the committee. You should also refer to your HOA’s Bylaws to determine if there are any additional committee requirements.

Blog post authored by Tinnelly Law Group attorney, Terri Morris.

To submit questions to the HOA attorneys at Tinnelly Law Group, click here.

Published on:

hoa update 2014Our “Annual Legislative & Case Law Update” newsletter for the year 2014 is now available in our library!

The Legislative & Case Law Update provides an overview of the new legislation and case law impacting California Homeowners Associations (“HOAs”) as we head into 2014. The new legislation includes, among other items, the re-organization of the Davis-Stirling Act (now in effect), and a bill that clarifies contractor licensing requirements for HOA managers. The new case law includes rulings that may impact HOA election rules, membership rights to attend Board meetings, use of HOA media outlets during election campaigns, insurance defense coverage, attorney’s fees recovery in HOA disputes, and assessment collection procedures.

Click here to read our Annual Legislative & Case Law Update (2014)

Have questions on any of the new legislation or case law? Click here to send us a question online.

Published on:

hoa insurance*New Library Article

There are instances where a disgruntled homeowner may file a lawsuit against his or her homeowners association (“HOA”). The lawsuit may be based on a variety of claims (i.e., claims involving property damage or alleged malfeasance on the part of the HOA’s Board of Directors). This is one of the reasons why HOAs are legally required to purchase and maintain certain insurance policies designed to protect the HOA and its membership from a variety of risks.

However, problems may arise in response to the actions taken by the HOA and its management once the lawsuit has been served. Those problems generally result from the way in which the lawsuit may have been “tendered” (sent to) to one or more of the HOA’s insurance carriers, including whether it was even appropriate to tender the lawsuit in the first place. This blog post addresses some of those problems and provides guidance to HOA Boards and their management with regard to this issue…

Our attorneys have also published this information in an article that is available for download from our Web site’s library.

Continue reading

Published on:

*New Case Lawhoa-ballots.jpg

Provisions setting forth the qualifications for serving on a homeowners association (“HOA”) Board of Directors are typically found in the HOA’s Bylaws. At the time when these provisions were originally drafted, they may have been insufficient to establish a set of specific qualifications designed to avoid operational issues and potential conflicts of interest. Therefore, HOAs have been traditionally required to formally amend their Bylaws in order to establish, clarify or expand director qualifications. This generally requires the approval of the membership and a formal vote which, as many Boards and industry professionals understand, often acts as a significant hurdle to achieving the HOA’s goals.

However, in light of recent case law, it appears that a less onerous mechanism for enacting new director qualifications may now be available. In Friars Village Homeowners Association v. Hansing (10/9/2013) the HOA adopted an election rule which prevented any member from seeking a position on the Board if that member was related by blood or marriage to any current Board member or other candidate for the Board. Subsequent to the adoption of the rule, a husband whose wife was already serving on the Board sought to nominate himself as a candidate in an upcoming election. There was a provision in the HOA’s governing documents that permitted members to “self-nominate.” However, the Association denied his request to submit his candidacy on the basis of the newly enacted “relationship” rule. The husband then brought suit against the HOA to challenge the validity of the rule on the theory that it exceeded the HOA’s authority and violated his self-nomination rights under the HOA’s governing documents.

The Court ruled for the HOA, noting that the new election rule acted as a qualification which preceded the right to self-nominate, and was therefore not inconsistent with the HOA’s governing documents or governing law. Furthermore, as the rule was based upon the legitimate concern that spouses or relatives might form unfair alliances on the Board, the Court found that the rule was both reasonable and rationally related to the proper conduct of the business affairs of the HOA.

hoa attorney

It is important to note that the Court’s decision was made in relation to the individual facts of the Friars Village case and the specific language found in the HOA’s governing documents. However, the Court’s decision may indeed establish a basis for adopting director qualifications through the implementation of reasonable election rules rather than through formal amendments to the Bylaws. HOA Boards of Directors should therefore consult with their HOA’s legal counsel prior to adopting new election rules to which HOA members may be opposed.

Blog content provided by Tinnelly Law Group attorneys Bruce Kermott and Kai Macdonald.