Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development's common areas, courts should defer to the board's authority and presumed expertise. Thus, we adopt today for California courts a rule of judicial deference to community association board decisionmaking that applies, regardless of an association's corporate status, when owners in common interest developments seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations' boards of directors.
Lamden v. La Jolla Shores Clubdominium Homeowners Ass'n
Plaintiff owned a condominium in one of three of defendant's condominiums. In the late 1980s, a contractor replacing the siding on plaintiff's building encountered termites. Defendant, the homeowner association board, had the contractor spot treat the termites and replace the damaged material. In 1990, plaintiff encountered termites in her condominium, which defendant also spot treated. The next year, both parties obtained termite inspection reports, which recommended fumigation, which defendant decided against because of the cost, problems with relocating residents, health concerns, upcoming renovations, expected damage by the exterminators, lost income, and the chance it would not solve the problem. Instead, defendant continued to rely on spot treatment until the problem became more widespread.
Over the next few years, defendant continued to encounter termite infestations throughout their repairs and renovations and continued to simply spot treat these locations. Finally, in 1994, plaintiff sued for damages, an injunction, and declaratory relief for numerous causes of action based on defendant's refusal to fumigate.
Trial court found that plaintiff's unit had a serious problem with termites, but that these posed no immediate structural risk to plaintiff. The trial court also found that defendant did consider fumigation and obtained bids for it and that the termites were primarily from water damage. The trial court stated that defendant "did take appropriate action" and that, while they might have done something different, defendant "did have a ration basis for their decision." Ultimately, the court gave judgment for defendant.
The court of appeals reversed, finding that the trial court applied the wrong standard of care and concluding that an objective standard of reasonableness should have been used.
Should judges defer to community association board decisionmaking when owners in the community seek to litigate ordinary maintenance decisions entrusted to the board's discretion?
Page 238 (not in casebook)
Common interest community boards understand their situations better than the courts would. Ruling otherwise would increase the amount of unproductive litigation. Other common interest developments could make stricter requirements of their boards if they want to.
Common sense suggests that judicial deference in such cases as this is appropriate, in view of the relative competence, over that of courts, possessed by owners and directors of common interest developments to make the detailed and peculiar economic decisions necessary in the maintenance of those developments.
"The common law business judgment rule has two components—one which immunizes [corporate] directors from personal liability if they act in accordance with its requirements, and another which insulates from court intervention those management decisions which are made by directors in good faith in what the directors believe is the organization's best interest."