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.)

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12 Responses to “Homeowner Prevails in Legal Action Against Board of Directors for Breach of Stautory Duties”

  1. Jay says:

    Interesting outcome of the small claims action.
    Question: In keeping in line with doing everything to help the members of the HOA what are you planning on doing with the $250 awarded in teh Small Claims action?

  2. Jan Gerstel says:

    Thank you for taking the time to leave a comment.
    First of all I need to make it very clear that suing the Board is not about the money. However, you can only sue for a monetary amount in small claims court.
    That being said, any monies awarded to me in legal actions against the Board (current and future) will be first used to pay back costs related to having to file the legal action, secondly, it will be used to pay costs for any mailings to the Association members and finally anything remaining will be donated to the Red Cross for Haiti relief. I will be posting a section that will fully disclose the accounting of all monies received from legal actions.

  3. A Concerned Homeowner says:

    Congratulations on winning the small claims lawsuit against the Board of Directors of the Morrison Ranch Homeowners Association. We wonder why the kids of Agoura Hills feel so entitled! Here you have a Board of Directors that does not feel that the rules apply to them. Everyone knows that you can NOT have your attorney represent you in small claims court. The fact that they even tried to have their attorney present shows the lack of respect for the whole proceeding and the courts.

    What I would like to know is, how much did it cost us homeowners having the attorney present at court the entire day. It is a misuse of association funds. This law firm that the Board of Directors has contracted with keeps giving the Board Members bad advise. They should of told the Board of Directors that they could not enter the courtroom and try to represent the Board of Directors. This current board needs to be replaced as soon as possible. Not only are they not following the CC&R’s but, they are spending association money trying to cover their tracks!

    I’m sure that they would like to spin this as you, Mr. Gerstel, are costing the association money with this lawsuit, when in fact, it is the Board of Directors whose wrong doings are costing us homeowners money!!

    I’m sure that they will have someone stand up at the May annual meeting and ask a question about lawsuits, attorneys fees, etc., to try and make you the “Bad Guy”. They have done this in the past to try to turn other homeowners against each other to keep the blame off of themselves.

    The Board of Directors are doing many things that are just plain wrong and I am happy the court saw that. More homeowners should unite to rid the association of this current Board of Directors!!

    Thank you for working so hard for all of us Morrison Ranch Homeowners.
    Keep up the pressure and maybe this Board of Directors will either start following the CC&R’s or resign.

    Please let me know where I can sign the Board of Directors recall petition.

  4. Interested Homeowner says:

    Did the court order the HOA to surrender the documents you have asked for or simply impose a fine of $250? Clearly, a Board that is willing to spend tens of thousands of HOA dollars on legal fees to impose their will and place financial pressure on its individual homeowners would be willing to further ignore your request for documentation and pay a $250 fine every 6 months or so.

    What do you suppose could be in the Board of Directors minutes that would have them not disclose and release documents that they are required to by law?? Why would they go to such lengths (and costs) to keep these documents out of your (our) hands? Is it for spite? Can they not stand it when they don’t get their way? The Boards actions only cast greater doubt on their motives and ability to represent us. What are they hiding???

  5. Jan Gerstel says:

    The court only ruled on one of the seven violations by the Board that I was trying to present.
    The court ruled that the Board did not produce the Minutes requested for 1998 through 2009 within the required time frame of within 30 days of the meeting. The Minutes do not have to be approved by the Board to be distributed, only marked as DRAFT. I requested the minutes on June 03, 09 in writing and they were not produced until July 17, 2009 which was a total of 44 days. This is clearly in violation of civil code 1365.(i)(j) which carries with it a fine of up to $500 for each written request presented for documents that were not produced in time.
    The biggest problem was over half the minutes were redacted by the Board. They claim it was done to protect the privacy of the members in the association. My opinion is that they were improperly redacted to hide something the Board doesn’t want to reveal. This issue will be going back to court to determine if the redaction is justifiable.

    There are 2 more violations for failure to produce documents on time and 4 failures to produce documents at all. These all will be headed back to court since the Board continued to refuse to produce them. It is clear from the current ruling by the judge that they will be fined again for their actions of producing documents late. It is also clear the judge will also order the Board to produce the documents they have refused to produce. Eventually, we will get to see what they are trying so hard to hide. Also realize if they get recalled or voted out this year, the new board will be able to review all documents including executive session minutes that are not available to the general membership. We will find if they are trying to hide something.

  6. Jan Gerstel says:

    I would like to comment on the subject of legal costs and how the Board likes to put the blame on me for running up legal fees. First of all, let’s not get side tracked from the real cause of the legal fees and who is responsible for them. The present legal action I filed resulted only from the Board’s refusal to follow the procedures required by law of all HOA Boards in California. The Board violated that civil code, refused to correct their mistake when I informed them of their violation and this was validated by a judge in a court of law. The Board likes to put the blame everywhere else and never has taken responsibility for any of their actions. As a matter of fact the Board had no defense to the violation of the civil code except to claim that I had not correctly named them in the lawsuit. This was dismissed by the judge.

    As much as the Board would like everyone to believe I am the cause of the escalating legal expenses, the truth is quite the opposite. If the Board simply followed the laws governing them correctly in the first place, there would not have been a lawsuit to defend. They need to be responsible for their own behavior. FYI, as of this date they still have not produced documents requested. You make your own judgments.

  7. Elliott Bowdach says:

    Let’s look at what happened here. By Mr. Gerstel’s account, on June 3, 2009 he made a written demand of the HOA for copies of roughly 11 ½ years of monthly HOA Board meetings. That’s the minutes of 138 separate Board meetings, some of which lasting many hours and deal with a myriad of issues [ I presume not having ever seen any such minutes ] including major hillside remediation. Though the review and then production of that many documents by volunteer Board members is an un-bargained for burden, the practices of past Boards [failure to clearly identify Executive Sessions of the Board] would make the review and production of those documents a significant task for a voluntary Board to be expected to perform at all, and certainly not within 30 days. This is so because each of the 138 Board meeting minutes would have to be individually reviewed by the Board to ensure that all Executive Session materials and deliberations of the Board are redacted [ Executive session minutes are exempted from disclosure ]. Recall Mr. Gerstel’s lament that over half the minutes were redacted by the Board, and his opinion that they were redacted so as not to reveal some nefarious conduct by the Board. It appears that Mr. Gerstel believes that the current Board committed wrongful acts… and then discussed those wrongful acts during Executive sessions of Board meetings… then memorialized their discussions of those wrongful acts in writing in the Executive Session minutes. Surely you jest.
    According to Mr. Gerstel, the Board produced the 11 ½ years of redacted minutes to him 44 days after request rather than the 30 days required. For this transgression [ 2 weeks late ], Mr. Gerstel sues the Board and gets Judgment against the HOA for $ 250 plus $ 30 costs, which Judgment, according to the case summary provided by Mr. Gerstel, was contested and will be appealed, followed by a Superior Court trial. For this outcome, Board members likely were required to spend what can be a full day sitting around the Van Nuys Courthouse, not to mention the legal fees associated with this dispute. It’s hard to believe that inconvenience to Board members and legal expense to the HOA was not Mr. Gerstel’s ultimate goal. It’s a wonder that any homeowner without a significant undisclosed agenda would ever serve on the HOA Board.
    Mind you that Mr. Gerstel has additional lawsuits pending also related to documents dating back to many years before any of the current Board members were on the Board or even lived in our community, and even many years before Mr. Gerstel moved into this community. Even though Mr. Gerstel files his lawsuits in Small Claims Court, so it costs him virtually nothing, since legal issues are involved, the HOA Board is duty bound to seek competent legal counsel in dealing with the legal issues raised, at significant cost to the HOA, and significant inconvenience and lost time by Board members. To not engage legal counsel, especially when lawsuits are filed or threatened, would be misfeasance. Mr. Gerstel knows this and seems content in the fact that his dalliances might be amusing to him, but they are costing the rest of the Morrison homeowners potentially thousands.
    Rather than pursuing frivolous lawsuits for which Morrison homeowners pay thousands in expenses, I would suggest that Mr. Gerstel dismiss all his suits against the HOA Board, and pursue a Board seat in the upcoming HOA election, and not pursue litigation that costs the rest of us dearly. If elected he will have access to not only un-redacted minutes of any HOA Board meeting going back to the 1980’s, but also all HOA documents whenever created. Such a course of action would save the HOA thousands and still afford access to Mr. Gerstel to all the HOA documents he wants.

  8. Jan Gerstel says:

    Jan Gerstel responds:

    Associations have standing to intiate legal action, and to defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings on behalf of the membership (Civil Code §1368.3, Duffey v. Superior Court) in matters that include but are not limited to: the enforcement of the governing documents

    Failure to Enforce: Associations can be held liable for their failure to enforce the CC&Rs. Owners may sue the association for damages and an injunction to compel the association to enforce its documents. Posey v. Leavitt.

    Owner Enforcement. Individual owners may also bring legal action against persons who violate the CC&Rs. Civil Code §1354(a).

    Injunctive Releif. In addition small claims judges have the power to grant equitable and injunctive relief when authorized by other statutes to award such relief . Code Civ. Proc 116.220. Examples are (i) ordering associations to produce records for inspection.

    Enforcement of Right to Inspect. Members may bring an action in small claims court to enforce their right to inspect.

    Having listed all the rights of every association member, I must say Mr. Bodach wants to divert the true meaning of the subject of the lawsuit by throwing numbers, details and excuses by the Board for not following the law. All that said, the issue is clear here. The Board did not follow the law, this was tested in court and the judge determined the Board to be in breach of their fiduciary responsibilities to the homeowners. The judge ruled the Board committed a wrongful act by failing to produce requested records in the time frame outlined in the Civil Code. Ms. Lynne Zuckerman, representing the Board along with their attorney, admitted the violation occurred and claimed it was because she was just too busy to get it done.

    To further clarify the legal action, there were seven (7) violations the Board committed for non-production of records, however, the judge chose only one to rule on inviting me to re-file the remaining cases. They certainly would result in an unfavorable outcome for the Board. I much prefer the Board produce the documents they still refuse to produce then return to court. However, of this date, they are still refusing to produce the required documents. I believe they will force me to return to court to get a resolution.

    As you read through Mr. Bodach’s email, he makes the claim that this is my entire fault and I am the cause of all the expense to the Association and burden on the Board. I must clarify this. I requested documents from the Board as stated in the law, the Board chose to refuse producing them; making it necessary for me to compel them with a court’s decision. I started requesting documents about a year ago. They must be responsible for their behavior, they violated the law and the penalty was a fine by the judge of $250. This lawsuit never would have existed if the Board simply followed the law and produced the records as required. That is what they are required to do. They chose not to do it and face the consequences for their behavior.

    There are some interesting, misleading accusations and bold statements Mr. Bodach is making. Mr. Bodach is ranting and raving about the cost incurred in this small claims action. Remember, Mr. Bodach is an attorney and knows very well that attorneys cannot represent anyone in small claims court. The legal fees generated were done so by the choice of the Board to have the attorney represent them in small claims court. Although the attorney knew that was not allowed, she still showed up and tried to represent them in the trial. They did not disclose the fact that she was the attorney until the judge asked her if she was a board member well into the middle of the trial. They knew this was wrong but did it anyway. The judge made the attorney step back and immediately stop representing the Board but not without a strict admonishment.

    Mr. Bodach complains of the fees generated and states “Mr. Gerstel sues the Board and gets Judgment against the HOA for $ 250 plus $ 30 costs, which Judgment, according to the case summary provided by Mr. Gerstel, was contested and will be appealed, followed by a Superior Court trial”. Mr. Bodach is speaking for the Board stating they will appeal the decision of the judge. An appeal will cost our Homeowners about $5,000 along with my defense running about the same. The appeal will certainly uphold the judge’s verdict. This will cost the Homeowner’s the $5,000 paid to their attorneys to file the appeal, the $5,000 it cost me because prevailing party gets their legal fees paid by the losing side. So this appeal Mr. Bodach speaks about will cost the Homeowner’s around $10,000. This clearly is not in the best interest of our Association members, however, it is in the best interest of their attorneys. I can only guess that is why they would be advising the Board to appeal. You might want to contact the Board and let them know how you feel about this kind of reckless waste of our money.

    I would like to point out that Mr. Bodach is being extremely slanderous in his email stating that I am filing “frivolous lawsuits”. That is a blatant lie as supported by the verdict in the case. The judge ruled I was right and the Board was wrong in their actions according to the law. That is not frivolous.

    Lastly, Mr. Bodach’s logic is thoroughly flawed. He makes a big deal that the deadline for the requested documents was a “significant task for a volunteer board to be expected to perform”. However, their alleged “merged minutes” were discovered in 2004. It would have been necessary on discovery of this mistake in 2004 that the minutes be redacted to correct their lack of knowledge for the procedure of taking minutes correctly. Failure to redact when they discovered their [aledged] “mistake” is a breach of their fiduciary duties. They may be an all-volunteer board but we do pay Lynne Zuckerman $23,000 per year (around $500 per week for a PART TIME secretary) to perform these kinds of tasks. (By the way, according to the recent budget, Ms. Zuckerman’s salary is being raised by $2,000 per year. As a Board member , does she get to vote on her own raise?). I also believe their redaction does not conform to the law. Going further with Mr. Bodach’s logic, he believes it is OK to be 14 days late producing documents, so it should also be OK to pay your dues late, file your income taxes late, renew your insurance late and pay your mortgage late. As many of us know, if you are one day late on your association dues, the Board will immediately lean on your property. Everyone must follow ALL the rules Mr. Bodach.

  9. Dear Jan,
    I admire your position, is a lot of stress managing a suit, specially when you notice a change on other owners toward you, making you feel like the bad guy. I have serious problems with the Board, the previous Board, gave me verbal permission to place bricks to have a little patio, since my unit is one of the only two witn no sitting area, and the Board has been very informal and inconsistent enforcing rules for years, so I spent $600 dollars for the bricks and work, two month later they wrote a letter saying you must remove the patio, and denied in a meeting having approved it? That really upset me, made me look like that in front of all? Then I requested the minutes and they wanted specific explanation what I need it and what for and why? Is that legal?

  10. Suzy Gallant says:

    Dear Jan: Wrote one before and the captcha code denied it. So I’ll try once more. I have a similiar situation at my HOA. I’ve been on the board for just four months and I am already in a reall by this one individual and his past board members. I’m in Calabasas which is very close to you. I would like to meet with you and see what guidance you have for my situation. This individual has been on the board for more than 8 years and recycles his past cronies, again and again. I’m not sure what is going on. He’s done everything he could to keep me off the board. Now that I’m on the board, it’s been hell. Everyone is afraid of him. Ofcourse he’s an attorney. Do you think you would have time to meet? I would be so appreciative. Thanks, Suzy

  11. Michael says:

    Congratulations, Jan.

    It seems to me that many of HOA Boards have become so problematic resulting in erection of many specific laws governing HOA operations. We are currently dealing with our HOA Board that run by a small closely-knit group who have been successful in getting elected. They have become so cocky that they felt that they would be able to get away with anything.

    The issue currently presented started with city’s school district hunting for money by closing one school and selling the land. The school district got away with selling the institutional zone land at residential-use value (much higher) then somehow ran through city planning commission and city council to change the zoning to residential. Very skillful, I must say. It was clear from day 1 (or even earlier) the HOA Board was on purchasing builder’s side. The Board (with members closely related to building industry) pretty much acted like an arm of the builder. Furthermore, the Board worked extremely hard to try to have the proposed new houses annexed to our existing homes, not only pretty much giving away usage rights for our facilities but most likely depressing our home value, in exchange for funds from the builder. Finally there came with some opposition that overcame all the obstacles set by the Board and voted down the annexation proposal only months ago. However, the Board was said to secretly campaigning for a re-vote for annexation with the builder’s new homes last February without mentioning in any of the Board meeting minutes up to the month of February. Came from nowhere, the Board now accepted $7,500 from the builder and scheduled re-vote in the month of May, without notifying all homeowners.

    I have written the Board with multiple e-mails as instructed by the Board regarding communication with it. As expected, there have been no reply because the management company indicated that the Board would consider it in next Board meeting. I was laugh at such notion because I noticed the Board didn’t wait for next Board meeting to even inform homeowners about this “re-vote” for the same rejected proposal. I pretty much know for facts that the Board is in violation of state laws and prepare to take the Board to small claims.

  12. Michael says:

    I notified the Board members that they are in violation of California Civil Code and demanded the Board to stop this illegitimate “re-vote” process. The Board’s management company rep tried to have me tell them the code. I will withhold such info until the minutes of last meeting comes out to see how these Board members make up the minutes. I just said that the Board was informed and warned about the violation of laws with regard to such “re-vote”.