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Woodbridge and Bird Rock: Two 2025 Cases with Major Association Implications

Karyn A. Larko, Esq.

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Woodbridge and Bird Rock: Two 2025 Cases with Major Association Implications

*Article originally published in CACM The Law Journal, Spring 2026

 
A number of California court cases were decided in 2025 that managers and their boards should be aware of.  Among these cases are 11640 Woodbridge Condominium Homeowners’ Assn. v. Farmers Ins. Exchange (“Woodbridge”) and Bird Rock Home Mortgage, LLC v. Breaking Ground, LP (“Bird Rock”).
 
Woodbridge
In Woodbridge, the association hired a contractor to replace the complex’s roof. While approximately 80% of the roof membrane was removed, a rainstorm hit, damaging the exposed insulation and plywood, and allowing water to enter some of the units. The roofer subsequently removed and replaced the damaged insulation and plywood, added a layer of base paper and base felt, and hot-mopped and tarred most of the roof.  The roofer also covered the roof with tarps in anticipation of another rainstorm. The second rainstorm dislodged the tarps, and rainwater penetrated the exposed felt layer and entered all of the units.
 
The Association had an “all risks” policy with Farmers Insurance Exchange (“Farmers”).  The association tendered a claim to Farmers for both the water damage to the units and the roofing work after the first storm and again after the second storm.
 
Farmers hired an expert to inspect the roof.  The expert opined that the tarps that had been used were too small and that the roofer had violated industry standards by removing 80% of the roof at the same time.
 
Farmers denied the associations’ claims, citing the “water damage” and “faulty workmanship” exclusions contained in the policy.
 
The association sued Farmers for breach of contract and breach of the implied covenant of good faith and fair dealing (i.e., for the bad faith denial of the claim).  The association also sued the contractor.
 
The Superior Court granted summary judgment in favor of Farmers (i.e., the court ruled in favor of Farmers based on motion papers, before the trial), concluding that the association’s losses were not covered under the policy because of the water damage and faulty workmanship exclusions contained therein. The association appealed the court’s decision.
 
The California Court of Appeal (“Court”) reviewed the case and reversed the ruling on the summary judgment motion.
 
The Court held that there was always a roof on the building because “roof” was not a defined term in the policy, and only certain layers of roofing material had been removed when the damage occurred; so the rain damage was covered. Accordingly, the water exclusion did not bar coverage.
As to the “faulty workmanship” exclusion, the Court found the term to be ambiguous because it could refer to faulty or negligent work and/or a faulty or negligent process. Accordingly, the Court found that coverage was not unambiguously excluded and, therefore, there were triable issues of material fact.
 
Because the Court found that there was a reasonable interpretation of the policy language under which the association had coverage, the Court reversed the summary judgment and sent the case back to the original trial judge so that a full trial could be conducted.
 
Prior to Woodbridge, there has only been one “all-risk” insurance case decided in California arising out of damage during roof repairs (Diep v. California Fair Plan Assn.). In the Diep case, the insurance company prevailed on summary judgment. The Court looked at the Diep case, but also looked to other states’ decisions on all-risk insurance coverage. Ultimately, the Court decided to follow the cases from New York, New Jersey, and Oregon.
 
This case is under review by the California Supreme Court, so the outcome of this case could change.
 
What are the key takeaways from this case?  You should tender insurance claims early and often, as it is not always easy to tell whether there might be coverage.  Your boards should also hire qualified experts to advise them on matters that are of great importance to their associations, including experts on evaluating denied insurance claims.
 
Bird Rock
In Bird Rock, homeowners defaulted on the payment of their assessments, leading the association’s trustee to record a lien and initiate a foreclosure sale under the Davis-Stirling Common Interest Development Act and the association’s CC&Rs.  At the initial trustee’s sale, Bird Rock Home Mortgage, LLC (“BRHM”) submitted the highest bid and tendered payment.  However, the trustee kept the bidding open after the sale pursuant to Civil Code § 2924m, which extends the bidding period for up to 45 days for certain residential foreclosure sales to allow “eligible bidders” to match or exceed the highest bid.  During this extended period, Breaking Ground, LP (“BGLP”) (an eligible bidder through its nonprofit partner) submitted a larger bid and received the trustee’s deed.
 
BRHM sued, arguing that Civil Code § 2924m does not apply to association lien foreclosures because such liens are not “mortgages” or “deeds of trust” under the statute.
 
The trial court ruled against BRHM, and BRHM appealed.
 
The California Court of Appeal affirmed the trial court’s holding, finding that the association’s CC&Rs, which created a contractual lien for unpaid assessments enforceable via nonjudicial foreclosure under Civil Code § 2924 et seq., met the statutory definition of a “mortgage” as a security interest in property for performance of an obligation (e.g., the payment of assessments), regardless of whether such liens constitute traditional home loans.
 
What are the key takeaways from this case?  Assessment liens can be treated as mortgages for foreclosure purposes if the CC&Rs grant the association the power to lien for unpaid assessments and the power to sell the separate interest to enforce the lien.  Winning bids at association foreclosure sales may not be final for up to 45 days.  The commencement of the 90-day redemption period will be delayed if the bidding period is extended. The initial high bid may not determine the final sale proceeds if the bidding period is extended.
 
Practice Tips:
 
  • Obtain and keep a complete copy of your associations’ insurance policies, including any exclusions and riders so they are readily available for review.
  • When tendering a claim, be sure you are complying with all requirements imposed under the policy for tendering claims.  Tender the claim in writing and retain a copy for the association’s records.
  • Because the laws pertaining to assessment collection are continually evolving and the potential liability for violating these laws can be significant, your boards should not attempt to perform any assessment collection activities themselves beyond conducting the votes needed to lien and foreclose against delinquent properties.

Don’t be Lured into Using the Barnacle to Address Illegal Parking

Karyn A. Larko, Esq.

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Some security patrol companies are touting the use of the “Barnacle” to combat illegal parking in the common area.  They claim that it is a quicker, easier, and less burdensome method of parking enforcement than towing.
 
The Barnacle is a device that attaches to the front windshield of a vehicle, fully obstructing the driver’s view so the vehicle cannot be driven.  The driver must pay a fine in exchange for obtaining the code needed to remove the device.
 
While this device is certainly effective in immobilizing illegally parked vehicles, its use, as well as the use of boots and other similar devices, is illegal in California.
 
In 2004, the Office of the California Attorney General determined that the use of the boot, which immobilizes a vehicle, constitutes “tampering” in violation of California Vehicle Code section 108522 because it negatively impacts the vehicle owner’s use and enjoyment of their vehicle.  Section 108522 provides that:

“No person shall either individually or in association with one or more other persons, willfully injure or tamper with any vehicle or the contents thereof, or break or remove any part of a vehicle without the consent of the owner.”
 
While the Barnacle immobilizes a vehicle in a different way, it still serves the same purpose as the boot, which is to prevent the vehicle from being driven.  Under the California Attorney General’s analysis, the use of the Barnacle also violates California Vehicle Code section 108522 because it also negatively impacts the vehicle owner’s use and enjoyment of their vehicle.
 
Neither the law nor the Office of the California Attorney General is exempt from section 108522 devices used to enforce legitimate parking restrictions.
 
For now, this means that the only effective way to enforce common area parking restrictions when fines and membership suspensions are not working is to tow, even though towing comes with its own set of risks.
 
PRACTICE TIP
Before towing any vehicles from the common area, make sure the Association has the signage required by California Vehicle Code section 22658 prominently displayed at all entrances to the community.  As an extra precaution, additional signs warning that illegally parked vehicles may be towed should be displayed periodically within the community.

Architectural Reviews and Approvals in Rebuilding

Karyn A. Larko, Esq.

Senior Attorney 

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Practices: Community Association Counsel 

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Considerations For Associations Dealing With Destruction Caused by Natural Disasters

*Article originally published in CACM The Law Journal, Summer 2025

California has been hit by wildfires and other natural disasters in recent years. In the aftermath of such disasters, associations and their members may be faced with having to reconstruct their communities. Some of the issues association boards and managers should consider when homes and condominiums (“Dwellings”) must be reconstructed are addressed below.

FACILITATING RECONSTRUCTION

The reconstruction process can take years to complete. By acting now to ensure the original construction plans are kept in a safe place, if there is a disaster, the association can compare owner submitted plans for reconstruction with the original construction plans, and more quickly identify and evaluate any differences that will impact the appearance of the new dwellings. A licensed architect should be retained to perform this comparison and assist the board or architectural committee (“AC”) in evaluating differences.

The board should also adopt clear and detailed guidelines with the help of an architect, addressing the information and documentation needed to review owner reconstruction applications. These guidelines, which can be adopted through the rule adoption procedures in Civil Code § 4360 (or as emergency rules, if necessary), should address whether any changes in the dimensions or locations of the reconstructed dwellings will be considered, as well as whether any other modifications will be considered or required. Providing this information up front can save owners time and money in planning for their reconstruction, reduce owner frustration and expedite the reconstruction.

Because building code requirements may have changed since the initial construction of the dwellings, the board or AC should work with an architect or general contractor to identify any such changes that will impact the appearance of the reconstructed dwellings, preferably before applications to reconstruct are submitted. This will further facilitate the application review process.

REQUESTS TO CHANGE DIMENSIONS OR LOCATIONS OF RECONSTRUCTED DWELLINGS

While the association is generally responsible for the reconstruction of the buildings in a condominium complex, there are instances where condominiums are built as single family detached dwellings or duplexes, for example, and the CC&Rs assign responsibility for reconstruction to the owners. In such instances, it is generally not possible for the board or AC to approve changes to the dimensions or locations of units and buildings because the dimensions and locations of the units and buildings are dictated by the condominium plan. To approve such changes, the condominium plan must be amended.

When it comes to planned developments, the board or AC may generally approve alterations to reconstructed dwellings, subject to any size, set back or other construction requirements and restrictions contained in the CC&Rs and rules. It may be possible for a board to grant variances to requirements set forth in the CC&Rs, if appropriate, depending on the precise wording of the CC&Rs. Upon a vote of the members, it may also be possible to amend the CC&Rs to revise these requirements as the board deems appropriate.

In the event construction requirements and restrictions are contained solely in the rules, the board or, in some instances, the AC, may amend the rules.

REQUESTS FOR OTHER CHANGES TO RECONSTRUCTED DWELLINGS

For aspects of construction which may not be specified in the CC&Rs (e.g., color schemes, exterior finishes), an association can be more flexible in approving modifications to the originally constructed dwellings. However, as quickly as feasible, the board or AC should meet with an architect to determine what kinds of changes should and should not be permitted to ensure the reconstructed dwellings are in harmony with any surviving structures. If necessary to expedite approvals to avoid risk of substantial economic loss to the association, these changes can be adopted as emergency rules pursuant to Civil Code § 4360(d) so owners have this information when planning their reconstruction.

A board may also want to consider amending the CC&Rs or rules to allow or require nonflammable roofs, fire-resistant landscaping or other changes, to better protect the community from future disasters.

TIME LIMITS FOR RECONSTRUCTION

The governing documents may impose time limits on when owners must start and complete their reconstruction. It is important for the board to promptly review any time limits and evaluate whether these limits are reasonable given the extent of the damage to the community and surrounding area, as well as related environmental challenges (e.g. issues related to the removal and disposal of construction debris), the availability of architects and contractors to prepare plans and perform reconstruction, possible permitting and inspection delays, materials shortages and delays in the processing of insurance claims.

If the governing documents mandate a shorter reconstruction timeline than is reasonable under the circumstances, the board should amend the timeline. If the governing documents do not impose time limits on reconstruction, the board may want to amend the governing documents to include a reasonable time limit to help ensure owners diligently pursue the reconstruction of their dwellings.

On a related note, if the governing documents do not impose a reasonable deadline for clearing properties within the community of any construction rubble and other debris, the governing documents should be amended, or an emergency rule adopted, to impose a deadline since the existence of these materials may pose a health and safety hazard for the community. Additionally, it may take years for owners to rebuild and some owners may not be able to rebuild. Removing the rubble and debris will help improve the appearance of the community until the community can be fully reconstructed.

THE USE OF CONSTRUCTION TRAILERS, PORTA-POTTIES, LIVE-IN TRAILERS, RVS, ETC. DURING RECONSTRUCTION

If the governing documents prohibit construction trailers, RVs or porta-potties, the board should consider amending the governing documents, or granting variances, if permitted by the governing documents, to temporarily lift this prohibition in the event of significant destruction. The amendment can and should limit the use of these items to specified periods of time and purposes, such as for construction supervision and meetings.

COMMUNICATIONS

Communicating with displaced owners can be especially challenging. Providing the CC&Rs, architectural/construction rules and the architectural application form on the association’s website and proactively requesting updated contact information can help facilitate the reconstruction process and enable the association to timely address any reconstruction issues.

PRACTICE TIPS

          • Many CC&Rs contain an article that expressly addresses destruction of the community. Reviewing and, if appropriate, amending this article to address reconstruction issues more fully before a disaster occurs could help accelerate the reconstruction process.
          • Proactively establishing an easy process for owners to submit updated contact information to the management company, such as through a website or portal, and periodically notifying owners of this process can help to re-establish communications with owners after a disaster.

Beyond Electronic Voting; Key 2025 Legislation Every HOA Manager Should Know

Karyn A. Larko, Esq.

Senior Attorney 

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Practices: Community Association Counsel 

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While the primary focus of the residential community association management industry is AB 2159, which permits electronic voting, several other bills were signed into law in 2024 that managers should be aware of.

SB 900  

SB 900, which went into effect January 1, 2025, significantly amends Civil Code (“CC”) § 4775 to address the maintenance and repair of utility services in common interest developments. SB 900 also makes minor revisions to CC § 5550 and 5610. Specifically, SB 900 makes an association responsible for the repairs and replacement needed to restore interrupted utility services (i.e., gas, heat, water or electrical services) that begin in the common area even when the issue extends into a separate interest or exclusive use common area, unless the association’s CC&Rs expressly provide for a different allocation, or the utility provider or local government is required to perform the work.

SB 900 requires an association to commence the repair process necessary to restore utility service within 14 days of service interruption.

If an association has insufficient reserve funds to cover the needed utility work, SB 900 permits an association’s board to obtain a loan to cover these costs without a member vote. The board may also levy an emergency assessment to repay the loan. Like a board’s existing right to impose an emergency assessment under CC § 5610, before obtaining a loan, a board must pass a resolution containing written findings regarding the nature of the expenses and the insufficiency of reserve funding. This resolution must be distributed to the members via individual delivery with the notice of the emergency assessment. The association must also provide any other notices required by law or the association’s governing documents.

If a quorum of the board cannot meet within 14 days to address the repair process, then at the next duly noticed board meeting, the total number of directors in attendance shall constitute a quorum. If applicable, the meeting notice shall state that the board may meet with a reduced quorum.

The board may also vote to approve the work needed to restore the utility service by electronic means, including email. All records of the electronic vote constitute association records and are subject to member inspection for three years.

In the event an association fails to meet these SB 900 requirements, the association may be held liable for that failure, but individual board members may not be found liable.

An association is exempt from complying with SB 900 requirements if the association is located in an area affected by a federal, state or local state of disaster or emergency, provided the disaster or emergency materially affects the association’s ability to perform its utility repair responsibilities.

The legislature amended CC § 5550 to designate utility services as “major components” to the extent an association is obligated to repair or replace those lines by CC § 4775.

The legislature amended CC § 5610(b) to add operating costs as an extraordinary expense if health or safety hazards are discovered on site.

AB 2114

SB 326 (“The Balcony Bill”) established CC § 5551 as of January 1, 2020. Under CC § 5551, an association is, among other things, required to have a reasonably competent and diligent visual inspection of a random and statistically significant sample of the exterior elevated elements for which the association is responsible for maintaining or repairing at least once every nine years. Previously, only licensed architects and structural engineers were permitted to perform these inspections.

Effective immediately, AB 2114 amended CC § 5551 to permit licensed civil engineers to perform these inspections rather than limiting the inspections to architects and structural engineers.

AB 2460

AB 2460 amends 2023’s AB 1458, which provided that if an association requires a quorum for director and/or recall elections, the association must provide the membership with general notice of the date, time and location of the meeting at which the quorum will be determined, and a statement that the board may adjourn the meeting for at least 20 days if the association fails to achieve quorum. If an association does not reach quorum for a director election, the association may adjourn the meeting to tabulate the votes for a minimum of 20 days. Unless the association’s governing documents authorize a lower quorum, the quorum for the adjourned meeting drops to twenty percent (20%). General notice of the adjourned meeting must contain the following: (1) the date, time and location of the adjourned meeting, (2) the list of candidates, (3) a statement that the quorum requirement is reduced to 20% and (4) that the ballots will be opened if the 20% quorum requirement is reached. The association must provide this notice to members not less than 15 days prior to the adjourned meeting.

AB 2460, which went into effect January 1, 2025, does not substantively change the law. Rather, it clarifies the changes to CC § 5115 and Corporations Code § 7512 made last year by AB 1458. Specifically, AB 2460 further clarifies that the 20% quorum for board elections and the related notice requirements only apply to incorporated and unincorporated associations with governing documents that impose a quorum requirement of more than 20% for reconvened meetings to elect directors, that members can call for a reconvened meeting, and that the notice that must be provided to the members at least 15 days in advance of the meeting date refers to the reconvened meeting date. Finally, AB 2460 clarifies that 20% of an association’s members, voting in person, by proxy, or secret ballot will satisfy quorum for the election of directors at a reconvened meeting and that the ballots will be counted if quorum is reached.

The Right to be Heard: A Timely Reminder of Civil Code Section 4515

Karyn A. Larko, Esq.

Senior Attorney 

858.527.0111
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Practices: Community Association Counsel 

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On January 1, 2023, amended California Civil Code section 4515 went into effect. The intent of section 4515 is to ensure that owners and residents of common interest developments can peacefully assemble within the community and freely communicate with others regarding matters related to the association and common interest development living, as well as other social, political, and educational purposes (“Matters of Public Interest”).

Specifically, section 4515 gives members and residents of an association the following rights:

        • The right to peacefully assemble or meet with other members, residents, and invitees or guests to discuss during reasonable hours and in a reasonable manner Matters of Public Interest, including matters relating to common interest development living, association elections, legislation, election to public office, or the initiative, referendum, or recall processes;
        • The right to invite public officials, candidates for public office, and representatives of homeowner organizations to meet with members, residents, and their invitees or guests, and speak on Matters of Public Interest;
        • The right to use the common area, including any meeting room or clubhouse when available, or, with the consent of the owner, the owner’s lot or unit, for an assembly or meeting related to Matters of Public Interest. Of note, an association cannot require members and residents to pay a fee, make a deposit, obtain liability insurance, or pay the premium or deductible on the association’s insurance policy in exchange for being able to use the common area for the assemblies and meetings listed in items 1 through 3 of this article;
        • The right to canvass and petition the members, the residents and board members regarding Matters of Public Interest, at reasonable hours and in a reasonable manner;
        • The right to distribute or circulate, without association permission, information on Matters of Public Interest at reasonable hours and in a reasonable manner; and
        • The right to use social media or other online resources to discuss any Matters of Public Interest even if the content is critical of the association or its governance.

Civil Code section 4515 does not require an association to allow members and residents to display signs, posters, banners, or flags in the common area, or use the association’s website to express their opinions on Matters of Public Interest. Nor does this law require an association to provide members and residents with social media or other online platforms where they can express their opinions on Matters of Public Interest.

It is important to note that if an association’s governing documents attempt to prohibit members and residents from exercising their rights under Civil Code section 4515, or if an association otherwise attempts to hinder members and residents from exercising these rights, the association could face liability, including a civil penalty of up to $500 for each violation.

 

PRACTICE TIPS:

        • Establish a system for reserving the clubhouse, meeting room or other areas suitable for meetings, and keep track of when these areas are reserved so you can promptly respond to requests to use these areas.
        • If the association generally requires members and residents to pay a fee, pay a deposit or obtain liability insurance to reserve the use of common area, include on the reservation form an area for the reserving party to identify the planned use of the common area, so you know whether these requirements must be waived.
        • Never retaliate against a member or resident for exercising their rights under Civil Code section 4515, even if they were unfairly critical of the board or management.

 

 

The Increasingly Complex Board Election Process

By Karyn A. Larko, Esq.

** This article was published on CACM’s The Law Journal– Summer 2024 Issue.

The Davis-Stirling Common Interest Development Act (California Civil Code (“CC”) §§5100-5145) mandates the following board election process for incorporated and unincorporated associations. Failing to comply with this process can lead to owner challenges of the election results and litigation, which in turn can lead to the election being voided, the association paying the challenging owner’s attorney’s fees and court costs, and civil penalties of up to $500 for each violation of the law.

Step 1: Notify members of the nominating procedure

The first step in the election process is to notify the members, via general delivery, of the procedure and deadline for submitting nominations for board election. This notice must be given at least 30 days before the nomination deadline and 90 days before the election.

Step 2: Handle unqualified nominees

If persons who do not meet the association’s candidate qualifications are nominated, the board must offer these persons internal dispute resolution before disqualifying them. The purpose of this meeting is to allow these nominees to qualify or prove they are qualified to run.

Step 3: Appoint/hire inspectors of elections

The board must appoint or hire one or three independent parties to oversee the election (“inspectors”). Inspectors can be association members who are not board members, candidates, or family members of board members or candidates. They can also be professional inspectors or other professionals, provided they, the entity they work for, and any parent entity are not performing any other compensable services for the association.

Step 4: Notify members of the election; create candidate and voter lists

At least 30 days before the ballot mailing, the association must notify members of the following via general delivery:

1) The date and time ballots must be received by mail or handed to the inspector(s);

2) The mailing address for returning ballots;

3) The date, time, and location of the election; and

4) The list of all qualified candidates who will appear on the ballot.

For associations that require a quorum to conduct elections, this notice must also include a statement that the board may call a subsequent meeting at least 20 days after the election date if a quorum is not reached. At that time the quorum will be 20% of the members unless the governing documents provide for a lower quorum.

At least 30 days before the ballots are mailed, the association must also prepare voter and candidate lists. The voter list must contain the name, voting power, address of the separate interest or parcel number, and mailing address for the ballot (if different) for all members. The candidate list must contain the names and addresses of all candidates.

Members are allowed to verify the accuracy of their information on these lists. The inspector(s) must correct errors on these lists within two business days of receiving notice of the mistakes.

Step 5: Ballot mailing

At least 30 days before the voting deadline, a ballot, two balloting envelopes, and the election rules must be delivered to all members. If the election rules are posted on the association’s website, the election rules can be omitted if the ballot includes the following statement in at least 12-point type “The rules governing this election may be found here:___.”

An association can but is not required to include candidate statements in the ballot mailing (unless the bylaws or election rules mandate their inclusion).

Step 6: The election

If a quorum is established, the inspector of elections must open ballots in public at a noticed meeting, and members must be permitted to witness the opening and counting of the votes.

If a quorum is required but not achieved at this meeting, the association may adjourn the meeting to a date at least 20 days after the adjourned meeting, at which time the quorum will be 20% of the members under CC §5115(d)(2). To take this action, the association must notify members via general delivery, at least 15 days prior to the reconvened meeting, of the date, time, and location of the meeting; the names of the candidates; that 20% of the members present, or voting by ballot or proxy (if permitted), will constitute a quorum, and that ballots will be counted if a quorum is reached.

Associations with adjourned quorum requirements lower than 20% should refer to their governing documents for any requirements.

Step 7: Announce election results

The election results must be recorded in the minutes of the next board meeting and provided to the members via general delivery within 15 days of the election.

ELECTION BY ACCLAMATION

If an association meets the requirements of CC §5103 and wants to elect board members by acclamation, the required election process changes in the following ways:

• The notice of the nominating procedure must be provided to members via individual notice at least 90 days before the nominating deadline. It must include the number of positions to be elected, the procedure and deadline for nominations, and a statement that if, at the close of the nominating period, the number of qualified candidates is the same or less than the positions to be filled, the board may elect the candidates by acclamation without a member vote.

• A reminder notice must be provided to members via individual delivery between seven and 30 days before the nomination deadline. This notice must include the same information as the original notice and a list of the names of all qualified candidates as of the notice date.

• Within seven business days of receiving a nomination, the association must send a written or electronic acknowledgment of the nomination to the submitter, and a written or electronic communication to the nominee confirming whether the nominee is qualified to be a candidate. These notices can be combined when a member nominates themself.

• The board votes to seat the candidates at an open session Board meeting. The agenda for this meeting must include the names of all qualified candidates who will be seated by acclamation.

PRACTICE TIPS

  • Include the candidate qualifications in the notice of nominating procedures to reduce the likelihood of unqualified persons being nominated.
  • Send out the notice of nominating procedures more than 90 days before the election so you have time to conduct IDR before the notice of the election and the names of the candidates must be provided to the members.
  • Remember the inspector(s) determine where the ballots are returned and kept until the election. This location can be the association’s management office, but only if the inspector(s) authorizes it.
  • While notices required as part of the election process can generally be provided to members by “general delivery” as defined by CC §4045, the association must provide these notices by “individual delivery” to any members who request individual delivery.
  • Check the bylaws and election rules to determine whether proxies are permitted and, if so, consult with the association’s legal counsel to ensure compliance with any requirements about the use of proxies.
  • Remember that the election rules are required and cannot be amended within 90 days of an election.
  • Provide equal access to the common area, without a charge, to members who want to campaign for or against candidates. If the association allows any candidate or member to use any association media, such as a newsletter or website, to campaign, all members must be given the same opportunity to use that media for campaign purposes.
  • If the association’s bylaws or election rules allow nominations from the floor at the annual meeting or write-in candidates, check with the association’s legal counsel before the election for guidance on what to do if someone who does not meet the qualifications to run for board election is nominated from the floor or as a write-in candidate.
  • It is just as important that the ballot mailing contains all of the information required by California law as it is that the association follows the mandated election process. Please consult with the association’s legal counsel if you are unsure what information must be provided.

 

Mum’s the Word When Disclosure Leads to Breach of Fiduciary Duty

By Karyn A. Larko, Esq.

It is common knowledge that a director has a fiduciary duty to his or her association and its members.  To be a fiduciary means that the director has accepted the highest duty imposed by law.  This duty obligates the director to act:

    1. In good faith;
    2. In a manner such director believes to be in the best interests of the Association; and
    3. With such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

This duty also obligates the director to place the interests of the association and its members as a whole over the director’s personal interests in the event these interests conflict.  This duty is referred to as the duty of loyalty or duty of undivided loyalty.

What may be less known is that one of the most common breaches of fiduciary duty is the disclosure by a director of information that should be kept confidential.

The disclosure of information that should be kept confidential can give rise to both a breach of a director’s duty of care and duty of loyalty.  In accordance with Civil Code section 4935, certain matters are discussed out of earshot of the members in executive session board meetings (i.e., discussions pertaining to personnel issues, the formation of contracts with third parties, litigation and potential litigation, disciplinary actions against members and member assessment issues).  Each of these issues requires the discussion of matters that if made public (i.e., disclosed to any persons other than current board members and management, including other owners) could needlessly and unnecessarily embarrass an owner or employee, compromise the association’s legal position in a dispute, result in the waste of association funds, lead to a claim that an owner’s privacy rights have been breached, or otherwise result in an unfavorable position for the association.  All of these results could lead to litigation and ultimately, to liability for the association.

Another act that is contrary to the interests of an association and damaging is the disclosure of association attorney-client privileged communications (i.e., legal advice) to third parties.  Communications between an association’s legal counsel and the board or management staff are subject to the attorney-client privilege.  This means these communications are protected communications that can be kept confidential from any disclosure, including disclosure during litigation.  In the litigation context, this protection is extremely important as it allows frank and open communication between the board and/or management staff and the association’s legal counsel as to what occurred and the strengths and weaknesses of the association’s position with regard to the claim or claims being made.  This protection also enables the association’s legal counsel and board to properly evaluate what course of action the association should take.

When communications between an association’s legal counsel and board or management  are revealed to others, including owners who are not on the board and family members, this disclosure can result in a waiver of the association’s attorney-client privilege.  This means that the association may be required to disclose all of the communications between the association’s legal counsel and the board or management, including without limitation, communications regarding the strengths and weaknesses of the association’s position and its legal strategy.  The disclosure of this information would, inevitably, be extremely prejudicial to the association’s interests.

A final act that is contrary to the interests of an association is the disclosure to persons other than board members of other sensitive information or documents that could expose the association to potential liability.  Examples of such information and documentation include the release of social security numbers, owner bank account numbers or other financial information, owner or resident health records, owner disciplinary records, plans and specifications for owner alterations (including security systems), vendor bids and proposals and confidential settlement agreements.  It should be noted that this list is by no means all encompassing.

The Significance of Disclosing Information that Should be kept Confidential

As stated above, the disclosure of information that should be kept confidential can lead to liability for the association.  It can also lead, in some cases, to personal liability for the director who discloses the information.  We say this because while California law generally protects volunteer directors from liability for their acts when those acts fall within the scope of their duties as a director, subject to certain requirements being met, this protection does not extend to instances where directors have breached their fiduciary duty to the association and its members.  Likewise, while the governing documents for many associations contain clauses protecting directors from liability, California law (i.e., Corporations Code section 204(a)(10)) expressly invalidates these clauses to the extent they attempt to protect directors from personal liability for breaching their fiduciary duty.

Finally, it is important to know that most directors and officers policies contain an exclusion whereby there is no coverage for a director who has breached his or her fiduciary duty.  Further, some carriers will issue a reservation of rights letter when asked to defend a breach of fiduciary duty claim.  This means that if the director is ultimately found by a judge or jury to have breached his or her fiduciary duty, the carrier is entitled to recover its defense costs from the applicable director.

 

PRACTICE TIPS:

  • When in doubt, do not share information with persons outside of the board and management without first checking with your association’s legal counsel on the advisability of doing so.
  • If participating in a telephonic or video executive session board meeting, do so in private. Do not allow family members or other persons to listen in on executive session meeting discussions.
  • Do not use phrases like “according to our attorney” or “on the recommendation of our attorney” when communicating with persons outside of the board and management as the use of such phrases could be deemed a waiver of the association’s attorney-client privilege.