Breaking News: Major New Court Decision Supports Board Discretion

By Kelly G. Richardson, Esq. CCAL, HOA Homefront Column

A major new case, Eng v. Opperman, was decided by the California appellate courts on December 19, and was certified for publication, meaning it can be used as a precedent in all California courts. The ruling in this case confirms the application of the Business Judgment Rule (“BJR”) to HOA decisions and discourages members who would sue their HOA simply because they disagree with those decisions.

Eng v. Opperman involved the Portola Valley Ranch Association, a planned development in Portola Valley. The Oppermans wished to build an Accessory Dwelling Unit (“ADU”) on their lot, but the HOA denied the ADU on the grounds of traffic safety and fire safety.  Neighbors Eng also objected to the ADU as proposed because they alleged it adversely impacted a driveway shared by the two neighbors. The Engs sued the Oppermans to protect their use of the shared driveway. The Oppermans then filed a cross-complaint against the HOA, alleging the HOA had wrongfully denied their ADU application. The Oppermans in their claim against the HOA alleged that the HOA breached its governing documents and breached its fiduciary duties to the Oppermans. The HOA filed a motion for summary judgment in its favor and against the Oppermans, which was granted, and the Oppermans appealed from the dismissal of their claim.

The appellate panel denied Oppermans’ appeal, making some important rulings which provide guidance to all California HOAs.

The ruling was based in large part on the California Supreme Court’s 1999 ruling in Lamden v. La Jolla Shores Clubdominium Homeowners Association. In the Lamden case a homeowner sued their HOA because she believed the board took the wrong approach to termite treatment at their condominium project but the Supreme Court held that the HOA board’s decisions under the BJR would be given protection and judicial deference.

In the Opperman decision the appellate court panel held that the law did not only provide BJR protection and deference to HOA maintenance and repair decisions but provided this presumption to all HOA corporate decisions. The opinion cited previous decisions consistent with the Lamden case ruling that HOA board decisions are presumed to be in good faith and based upon sound business judgment and that this presumption can be overridden only by showing that the board acted fraudulently, in bad faith, overreaching, or with an unreasonable failure to investigate important facts.

This ruling reminds HOA boards how important it is to stay within the boundaries of the BJR. Decisions must be in the best interests of the HOA, in good faith, and based upon reasonable inquiry. Such decisions also must be made by the board, and not by a single director or officer.

The ruling also provides a cautionary tale for HOA members tempted to sue their communities in response to decisions they believe are wrong. As a result of this ruling, HOA communities and their boards can know that so long as they do their best for the community, they can have more confidence that they won’t wind up in court each time a member of the HOA strongly disagrees with their decisions. HOA members who unsuccessfully sue their HOA may, like the Oppermans, discover that they will be held liable for the HOA’s attorney fees in addition to their own.