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Liabilities and the HOA board member

Business Law

Posted: May 23, 2008 3:17 p.m.
Updated: July 24, 2008 5:02 a.m.
 

The Los Angeles Times recently ran an article that suggested personal liability against a Home Owner Association ("HOA") board member for giving legal advice without having a license to practice law and various blogs are now available for homeowners to ask for help and/or criticize their board members.

With this criticism, one has to wonder why people volunteer for these positions given that it generally is a thankless service, there is no pay involved, the hours may be long, and it often involves complicated
decisions that impact the community the board member lives in on a day to day basis. Complicating this matter, a board member faces the possibility of being sued by disgruntled homeowners that disagree with
the board's ruling.

So what protection is there for the board member?

Civil Code Section 1365.7 provides some protection for the volunteer board member against various tortuous acts or omissions including but not limited to: bodily injury, emotional distress, wrongful death,
property damage and loss as a result of the act or omission provided that certain criteria are met. The board member's act or omission must:
1. be performed within the scope of the board member's duties;
2. be performed in good faith and 3. not amount to willful, wanton or gross negligence.

The board member must also be a tenant of the HOA and is an owner of no more than two separate interests in the HOA. Moreover, the HOA must maintain and have in effect at the time of the act or omission occurred and at the time the claim is made one or more policies of insurance which include coverage for a. general liability of the association and b. individual liability of officers and directors of the
association provided that both coverages contain the minimum amount of $500,000 if the common interest is less than 100 separate units and $1,000,000 if the common interest is more than 100 separate units.

Moreover, if the HOA is a corporation, Corporation Code Sections 7231 and 7231.5 may provide safe harbor for the board member provided that he or she acted in a manner that he or she believes to be in the best interest of the HOA and with reasonable reliance or inquiry on information, opinions, reports, statements, or other data, financial or otherwise, prepared by officers or employees believed to be reliable and competent in the matters presented, or by independent counsel, accountants, or other persons qualified to give opinions. Again, the board member must act in good faith for these sections to apply.

There are four general actions a board member can take to fall outside of these statutes. These actions include: failing to act in good faith, receiving compensation from the board for service as a board member
(either directly or indirectly), failing to stay within the normal scope of the board member's duties, and/or acting with willful, wanton or gross negligence. Good faith is a legal term of art that is determined by motive and intent, and can be difficult to prove should a party file an action against a board member. Gross negligence has long been defined in California and other jurisdictions as either a want or even a scant care or an extreme departure from the ordinary standard of conduct.

By contrast, wanton or willful negligence describes a person who may have no intent to cause harm, but who intentionally performs an act so unreasonable that he or she should know that the harm will result.

Thus, if a board member removes election signs to preserve his or her own election, provokes fights with a contractors when he or she has been told by the board to stop provoking the contractor, or misrepresents
board authority when negotiating with a contractor or a homeowner then that board member may be found willfully or wantonly negligent depending on the totality of the facts. However, making a mistake such as poor budgeting or miscalculating an assessment would be ordinary negligence, which would be covered by the statutes.

The bottom line is that a board member should refrain from conduct that one knows is wrong, is against the law, or is ill advised as the best protection for a board member will come from acting reasonably.

Brian Tinkham is a member of the law firm of Poole & Shaffery, LLP, a law firm which provides general counsel and litigation services to businesses and management personnel. His column represents his own
views, and not necessarily those of The Signal. "Business Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association.
www.SCVBar.org.

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