Homeowner Prevails in Legal Action Against Board of Directors for Breach of Stautory Duties
The civil codes governing the management of Homeowner’s Associations in California is very clear about production of documents requested by Homeowners. Each Homeowner has a right to inspect the homeowner’s records (with a few exceptions). Members may bring an action in small claims court to enforce their right to inspect and copy the association’s records. If the court finds that the association unreasonably withheld records, or did not produce the requested records in the required time frame, the court may assess a penalty of up to $500 for the denial of each separate written request and order the production of records. Civil Code §1365.2(f).
Since I have published this website and disclosed a few of the questionable actions of the Board, they have either not responded to my written requests for documents, sent me threatening letters from their attorneys or finally produce some of the requests in whatever time period they pleased. It is my opinion their actions were clearly a breach of their fiduciary duties and the laws governing HOA management, not to mention raising the question of “What are they trying to hide?”
I tried resolving this first with asking the Board for a “Meet and Confer”. A Meet and Confer is where the parties meet at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute. The Board did not feel that such a meeting would be productive and chose not to meet with me. My second effort to resolve this dispute was to have both sides go to a mediator in an effort to come to a resolution. I had suggested using the L.A. County mediation service which is a free service to avoid any burden of expense on the Association. However, the Board demanded to use JAMS, a very expensive (about $5,000), mediation service made up of retired judges. I refused to agree to that kind of expense and the Board refused to use the free mediation service. The only thing left was to let a judge decide. I had two options: sue the Board in superior court which involves attorneys and expenses of tens of thousands of dollars for each side with loser paying winner for all his legal fees or challenge the behavior of the Board in small claims court where the cost is $30, no attorneys are allowed and a maximum penalty of up to $500 per each written occurrence .
I chose the small claims action since this would have very minimum financial impact on the Association members if I prevailed and would not involve any attorney’s fees on behalf of the Board’s attorneys since they are not allowed to represent them in small claims court.
The lawsuit was on January 19, 2010 and the court determined the Board had breached their statutory responsibilities for failure to produce the Board of Director meeting minutes I requested in the time frame required by statue. The court fined the Board $250 for their actions of breaching their statutory responsibilities plus the $30 court costs. Had I gone to superior court to decide the case, it could have cost our Association tens of thousands of dollars to get the same result. (SEE CASE SUMMARY)
As I have tried to point out in this website, the Board of Directors act as if they can do whatever they want regardless of the laws and rules that they must abide by. This is exceptionally evident of their behavior in small claims court. It is a very well known fact that lawyers are NOT ALLOWED to represent you in small claims court. However, the Board brought in their attorney to try and represent them in this small claims action. They did not state this fact up front but had her try and present their case. It wasn’t until the judge asked their attorney who she was and if she was a member of the Board. She replied that she was not a member of the Board but was the attorney who represents the Board. The judge was extremely upset and immediately stopped her from continuing. The judge lectured the attorney about this ‘stunt’ and commented with disgust that it was an attempt by the Board to circumvent the small claims system.
The Board clearly demonstrated a disregard for the rules of the court system and although they knew it was wrong and improper to have their attorney in small claims court, they seem to feel they could do it anyway. I can assure you, this did not help their case. That being said, let’s talk about the cost to have their attorney in small claims court for a whole day. How much did that cost all of us? I believe this was a costly and totally irresponsible behavior on the part of the Board of Directors. In my opinion, I feel it is clearly a breach of the Board’s fiduciary responsibilities to our Homeowners.
To make it perfectly clear what this all means, here is a summary of what you should expect from our Board:
Fiduciary Duties of Directors
Fiduciary Duty: “A duty to act for someone else’s benefit, while subordinating one’s personal interest to that of the other person. It is the highest standard of duty implied by law (e.g., trustee, guardian).” -Black’s Law Dictionary
Upon their election to a condominium or homeowners association board, directors become fiduciaries, which means they are held to a higher standard of conduct. As fiduciaries, directors have two primary fiduciary duties: (i) duty of care, and (ii) duty of loyalty. This applies to directors of both incorporated and unincorporated associations.
DUTY OF CARE (Due Diligence). Directors must be diligent and careful in performing the duties they have undertaken. Burt v. Irvine Company.
DUTY OF LOYALTY (No Self-Dealing). Directors must act in the best interests of the association even if at the expense of their own interests.
We would like you to share your thoughts about this.
(Note: this article was revised because the Board felt it was a mischaracterization to say the Board breached their fiduciary duties. Although that is my opinion and I fully believe they did, I have corrected the article to reflect the outcome of the small claims case to be for a breach of the Board’s statutory duties not their fiduciary duties.)