*New Case Law
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