2021 Legislative Update Webinars

Missed our Annual Legal Symposium? Have questions about recent updates to legislation? Don’t worry!

Epsten, APC Senior Attorney, Pejman Kharrazian is hosting complimentary 1-hour accredited webinars for local community management offices to discuss recent changes to the law.

Now scheduling for Tuesdays and Fridays
12:00 p.m. to 1:00 p.m.

Contact us to schedule a webinar for your office and managers!

Click here for the informational flyer

Must We Sue This Owner?

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By Pejman D. Kharrazian, Esq.

A community association board is required to enforce its governing documents against owners. But must a board file a lawsuit if internal enforcement measures fail to gain a recalcitrant owner’s compliance? I often see boards grapple with this difficult decision. The following discussion of California case law explores how directors should decide whether to sue an owner or not and what legal protections are available once that choice is made.

The Business Judgment Rule as a guide and a defense.

In 1977, Beehan v. Lido Isle Community Assn. established that a board may exercise prudent business judgment (i.e., in good faith, in the best interests of the association, and after conducting due diligence) in deciding whether or not to sue over a violation of the governing documents.

But Beehan does not go as far as saying a board can indiscriminately decide not to sue an owner who has violated the governing documents. Instead, it says a decision about whether to sue should be made using the business judgment rule as a guide. The business judgment rule, codified in California Corporations Code section 7231, applies to nonprofit corporations and says:

“A director shall perform the duties of a director . . . in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.”

In following the business judgment rule, a board should, for example: examine the underlying facts, consult with independent legal counsel and other experts to analyze the merits of the potential case, review and follow the governing documents, weigh the costs and benefits of filing a lawsuit versus the nature and magnitude of the owner’s violations, discuss the matter in executive session and memorialize in minutes. A board should also keep in mind the prevailing party attorneys’ fee provisions found in the Davis-Stirling Common Interest Development Act and many CC&Rs—that essentially say, if an association loses the case it could be paying its own attorney and the owner’s attorney!

At the end of the day, if a board’s decision about whether to sue is challenged, the primary defense will likely be the business judgment rule.

Will a court give the board’s decision judicial deference under Lamden?

In 1999, Lamden v. La Jola Shores Clubdominium Homeowners Assn., the California Supreme Court established that when a “duly constituted association board, upon reasonable investigation, in good faith and with regard for the best interests community association and its members, exercises its discretion within the scope of its authority” on how to maintain the common areas, “courts should defer to the board’s authority” (a.k.a., “judicial deference” or the “Lamden rule”). The Lamden rule is analogous to the business judgment rule and is another legal doctrine that affords protection—even if an association is unincorporated.

The court in Haley v. Casa Del Rey Homeowners Assn. recognized Lamden applied to ordinary maintenance decisions. But nonetheless went on to say that Lamden “reasonably stands for the proposition that the Association had discretion to select among means for remedying violations of the CC&R’s without resorting to expensive and time-consuming litigation, and the courts should defer to that discretion.” Haley comes very close and possibly even crosses the line of extending Lamden’s judicial deference standard to a board’s decision about whether to sue.

Haley is not alone in expanding Lamden beyond ordinary maintenance decisions. For example, Dolan-King v. Rancho Santa Fe Assn. granted judicial deference to a board’s architectural decisions; Harvey v. The Landing Homeowners Assn granted judicial deference to a board’s interpretation of the CC&Rs; Watts v. Oak Shores Community Assn. granted judicial deference to a board’s adoption of rules. In taking their broader view of Lamden, Haley, Dolan-King, Harvey, and Watts each quote the seminal California Supreme Court case of Nahrstedt v. Lakeside Village Condominium Association, Inc.:

“Generally, courts will uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with public policy.”

But other cases have tried to limit Lamden: Ritter and Ritter v. Churchill states the Lamden rule protects individual directors from liability, but seems to suggest Lamden will not protect the association (as an entity) from liability for an improper decision.[1] But in Lamden the directors were not parties to the action when the Supreme Court made its decision (only the association was). By that logic, it seems Lamden did apply its judicial deference rule to the association. It therefore, appears Ritter may have gone too far in this regard.

Ritter also reads Lamden narrowly by saying it did not apply to extraordinary (versus ordinary) maintenance decisions by a board, whereas, Haley, Watts, Harvey, and Dolan-King indicate Lamden can apply beyond ordinary maintenance decisions. Ritter seems to be an outlier in this regard.

Further, Affan v. Portofino Cove Homeowners Assn illustrates that Lamden does not apply to decisions of association managers and does not generally apply in situations where no decision is made by the board (inaction versus action).

If future courts are inclined to expand Lamden’s judicial deference rule, then the decision of an association board about whether to sue may be given judicial deference by a court, in addition to the protections provided by the business judgment rule.

 

[1]  Other cases have held an association can remain liable for injury to third parties that flows from improper decisions. (See e.g., Frances T. v. Village Green Owners Assn.; White v. Cox)

Q&A: Our minutes have minimal information on motions, topics and little depth. Are we at risk of having inadequate documentation to show our due diligence? What is the optimum content of our minutes?

Q.  Our minutes have minimal information on motions, topics and little depth. Are we at risk of having inadequate documentation to show our due diligence? What is the optimum content of our minutes?
A.  For minutes, less is more. For each item of business, we recommend the following information be included: the topic, the Board’s resolution with sufficient detail to understand the Board’s rationale and decision, who moved/seconded, and the director vote tally (e.g., “passed unanimously”). The minutes should not include comments, discussion, dicta, or minutiae. Minutes should not be a transcript of the meeting. Including superfluous language in minutes can come back to bite, especially in litigation where minutes are discoverable and can be used as evidence against the Association or Board.  Pejman D. Kharrazian, Esq.

Email Policies for Community Associations

By: Pejman Kharrazian, Esq.

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Martin Lomansey, an early twentieth century political boss from Boston, is credited with giving the following warning to young politicians — “Never write if you can speak; never speak if you can nod; never nod if you can wink. 

When emailing, it is not often we consider what consequences putting our thoughts into writing and pressing “send” will have down the road. The same traits that make email so appealing – the speed and ease of communication – can also expose pitfalls. These potential issues can be even more important when you serve as a volunteer in your association.

As a general rule for email, save discussions for board meetings (less is more) and email as if your mom is watching over your shoulder (watch what you say). Beyond these common sense warnings regarding brevity and discretion, the following discussion highlights a few issues surrounding email communications in community associations. These issues should be considered when creating or revising an email policy for your association, which is considered good practice.

Emails can be Discoverable

Emails can be discoverable in a litigation context, meaning if the association is involved in litigation, emails sent by directors, officers, committee members, and other volunteers can be sought out by the opposing side. Even outside of litigation, certain emails may be subject to a request for production under Civil Code section 5205, which allows members of the association to make document requests for association books and records.[1] In either scenario, the contents of your email communications, as an association volunteer, could essentially become public.

Separate Email Account for Association Communications

If you serve as a volunteer in your association, then you should have a separate email account for your volunteer role (i.e., [email protected]). Such an account is quite easy to set up and it’s free. Many providers offer free cloud based email accounts that include storage on the cloud for your emails and the ability to sync the email account to your tablet or smartphone so you don’t have to log into a computer separately to gain access (gmail, yahoo and ymail are a few such providers).

Having a separate account helps keep a bright line separation between your communications as an association volunteer and your work or personal communications. This separation is important because if your emails become the subject of a discovery request, it will prevent you from having to sift through and separate association communications from other communications. The separation also helps you realize which hat you are wearing when communicating, which helps keep your association communications thoughtful, brief and professional and lets the recipient know the capacity in which you write them.

Further, litigants have the ability to subpoena an employer for access to your work email if they suspect you were using a work account to conduct association business. This can be problematic because an employer may not take the time to separate out association only emails and may simply produce all emails sent by you on your work account. Not to mention, your employer will likely not be thrilled to receive the subpoena and find you were using a work account for non-work communications!

Cloud Based Services

One caveat to the cloud based services such as gmail, is that they too can be subpoenaed and often are for production of emails during litigation. Therefore, if you do set up a separate association volunteer email address through a free cloud based provider, you must still keep in mind that what you say in an email can be shown to the membership, broadcast to the public or published to a jury down the road.

Shared Email Accounts and Shared Communications

It is also not a good practice to have a shared email account with a spouse or significant other (i.e., [email protected]). Certain privileges that may prevent the discovery of an email communication can be waived or defeated because of the joint nature of an email account. In a scenario where one spouse is a board officer and the other is not, a confidential communication meant for the board officer could become discoverable where it otherwise would not. For the same reason it is not wise to forward or share association emails with third parties.

Use of Email for Association Communications

Finally, when you are communicating over email in your capacity as an association volunteer, everything you say can be construed as being on behalf of the board as a whole. If asked a specific question by a member, use caution when answering and in most cases it is best to direct the member to discuss their issue at the open forum of the next board meeting.

Also, as discussed in other articles (See Email Do’s and Don’ts for Community Associations), except for some very narrow exceptions, email meetings are not allowed and board members should discuss association business at board meetings and not over email.

Conclusion

Next time you are about to press “send” consider the potential impact of your email communication. Remember that when it comes to email, less is more and watch what you say. It is a best practice for your association to have an approved email policy for the board and volunteers setting forth guidelines for procedural items such as the establishment of separate email accounts and for the use of email for association communications such as communications by an individual board member to a member.

 


[1]   Document requests under Civil Code section 5205 have tight deadlines (as little as 10 days). If you receive one contact your association’s legal counsel immediately.