In general, California’s HOA laws protect volunteer board members from personal liability. (Civ. Code §5800; Corp. Code §5047.5(b).) Directors of an association have no vicarious liability for torts of the association, even though they are the policymakers that control the association’s conduct. (Frances T. v. Village Green Owners Assn. (1986) 42 Cal. 3d 490, 504.) Directors and officers can also be indemnified by their association if they had no reasonable cause to believe their conduct was unlawful. (Corp. Code §7237.) The Corporations Code extends further protections under the Business Judgement Rule. Further, many CC&Rs and bylaws both protect officers and directors of HOAs from liability for negligence while in office. Often, the HOA’s insurance policy will cover directors and officers for errors and omissions made while in office.
The HOA’s and directors’ primary defense is the Business Judgment Rule. That Rule protects directors from mistakes provided they: acted in a disinterested and independent manner, acted in good-faith, and were reasonably diligent in informing themselves of the facts before acting.
But, there are certain circumstances in which board members cannot avail themselves of Business Judgment Rule protection and can be held personally liability for their actions or inactions. A director of an association may held liable in his or her individual capacity if he or she personally participated in a wrongful action. (Frances T. at pp. 503-506.) Association directors may be sued for improper conduct only if they personally directed or participated in the alleged improper conduct. (Ritter & Ritter v. Churchill Condominium Assn. (2008) 166 Cal.app.4th 103, 120-121.) The protections afforded to a volunteer director don’t apply where the director doesn’t act reasonably, and that includes making a reasonable inquiry and informing himself of the governing documents, such as the CC&Rs and bylaws. (Palm Springs Villas II Homeowners Association, Inc. v. Parth (2016) 248 Cal. App. 4th 268)
In Parth, an HOA director entered into contracts that violated the Bylaws without having first reviewed the Bylaws, hired an overpriced unlicensed contractor without investigating the contractor or putting the work out for bid, acted in disregard for a board vote by firing the property manager, and signed a contract without submitting it to the board for review first. On appeal, the Court found that this director could be personally liable and was not entitled to the Business Judgment Rule protections.
If your HOA board members act outside the scope of their responsibilities, or are harassing you, contact us today. Our attorneys have seen and resolved many cases against individual board members and are here to assist you as well.