|In this day and age, particularly in California, filing a lawsuit and being sued is normal everyday living. People today do not think twice about filing a lawsuit. Just because someone sues does not mean that he or she has a case or will win. In lawsuits, there is no such thing as a “slam dunk.” Some lawsuits have more merit than others. One thing is for sure, for all parties involved, it is time- consuming and expensive, and our resources are often wasted.
Here are some tips that the author has gleaned from over 35 years in practicing homeowner association law. This article is geared toward Boards of Directors and their advisors.
1. Know your Governing Documents. This should be required of all directors. Read your ABC’s: Articles of Incorporation, Bylaws, and CC&Rs. Additionally, know your Operating Rules and Procedures. To gain knowledge about how your Association operates, you must understand your governing documents. When a problem/dispute arises, look to your governing documents for guidance or an answer.
2. Be Consistent in Enforcement. Failure to consistently enforce your governing documents can lead to defenses of discrimination, selective enforcement and laches (too much time has elapsed). Do not
A. If it is against the CC&R’s to have hardwood flooring on the second floor of a condo building, don’t allow the President to get away with violating the CC&R’s because the next person on the 2nd floor who installs hardwood flooring will point the finger at the President and ask, “Why did you let him/her do it, but not me?”.
B. Do not let time prevent the Board from enforcement of the governing documents. Waiting too long will cause problems: i.e., the statute of limitations (the time to sue) may run; memories may fade, witnesses may no longer be available, and circumstances may change.
3. Build Trust in Members. Encourage members to become involved. Be open and willing to listen to both sides. If a member has a particular expertise, ask for his or her assistance in this area. Maybe that member would be willing to help but has never been asked. An Association is everyone’s community. Stress how you are just trying to do what is best for everyone. Remember, this is a democratic society where all opinions can be expressed. Listen to members’ views. Only hold executive meetings when necessary. Explain your actions. When confronted with an emotionally charged member, try to defuse the situation, let the member have his or her say, and gently present the other point of view. Do not become vindictive.
4. Know your Fiduciary Duty. You are held to a higher standard as a director. You must adhere to your fiduciary duties: to act in good faith and in the best interests of all members. Do your homework. Read the governing documents. Read the budget and financial reports. A breach of fiduciary duty might be: exposing a director for mismanagement of Association funds, failure to enforce the governing documents or failure to maintain the premises. Being a Board member often involves making tough decisions and engaging in frequent cost/benefit analysis.
5. Know the Business Judgment Rule. Directors must act in good faith, in a manner they believe to be in the best interests of the Association and as reasonably prudent people. Investigate a director who continually misses Board meetings, does not act in a reasonable manner or in the Association’s best interests. He or she may not be protected by the business judgment rule. Consult experts and rely on their advice. This will help shield you from liability. Do not be guided by a “personal agenda.” This might cloud your thinking.
6. Know the Judicial Deference Rule. Here is the rule: If a duly constituted association board, upon reasonable investigation, in good faith and with regard for the best interests of the association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise (Lamden v. La Jolla Shores Clubdominium Homeowners Association (1999) 21 Cal.4th 249, 265). This case had to do with a maintenance decision about termite treatment. The board’s decision was upheld.
A. Judicial deference has been expanded from maintenance decisions to architectural decisions and interpretation of CC&Rs language.
B. The judicial deference rule has not been applied where the duty of the Association was clear, and the board refused to act.
C. The court refused to enforce the rule when the Board’s actions contradicted the CC&Rs.
Recommendation: make an informed decision and document your reasons. Step back and ask: “Does the decision make sense and can the Board rationally defend it?”
7. Avoid Conflicts of Interest. In 2014, in a section of the Davis-Stirling Act (Civil Code 5350), conflicts of interest are addressed. Avoid self-dealing and anything in which you have a financial interest. If a conflict of interest is found to exist, a breach of fiduciary duty will be found, and it is likely that an interested director could be held individually liable, in which case the Board’s errors and omissions insurance would not defend that director.
A. Do not vote on anything that involves you – any disciplinary action, a reimbursement assessment, a request for a payment plan, a decision to foreclose on a lien, a review of a proposed architectural change, a grant of exclusive use of a portion of the common area, basically, any matter in which you have a financial interest. Remember your duty of loyalty and that you must serve the best interest of the Association, not yours. Do not maintain a hidden agenda.
8. Maintain Insurance. Make sure the Board of Directors has insurance and that the Association has adequate insurance coverage. Consult an insurance broker for information. When and if a lawsuit occurs, it is less stressful if the Board and Association are covered by insurance.
9. Compromise. Achieving peace within a community is an admirable goal. After all, you are neighbors and getting along with each other is a step in the right direction.
A. When faced with a complicated situation, it is often beneficial to all parties to resolve the conflict. How is this done? First of all, each of the parties must be willing to give up something to gain resolution of the dispute. This often entails putting aside emotions and looking at the situation from an objective standpoint.
B. Next, you have to look at it from a cost/benefit analysis. What will it cost to achieve the desired result, both financially and emotionally? What will be achieved? Will the result benefit the community? At what cost?
C. Mediation is only successful if the parties are willing to compromise. If that is the case, it can be a powerful tool to resolve disputes.
10. Use Common Sense. After evaluating your governing documents, current laws and the personalities involved, do not forget to use common sense. Is this reasonable? Is this equitable or fair? Do my actions show compassion? Is this just? Sometimes, we get lost in the principal of an issue and forget to see the forest from the trees.
Association living is guided by many rules and regulations. This type of living is not for everyone. There will be violations and disputes. Attempt to resolve them before litigation commences. Sometimes the filing of a lawsuit is inevitable, but you can do everything in your power to avoid one. Start by being knowledgeable, take your position on the Board seriously, educate yourself, do not become self-absorbed and put the best interest of the Association ahead of everything else.