Defense Judgment: Limitations to a Homeowners’ Association’s Liability
Lorber Greenfield & Polito (LGP) recently obtained a defense judgment for a homeowners’ association (“HOA”) client in a bench trial involving a breach of contract claim by one of its members, who owned a condominium unit on the first floor. The plaintiffs unsuccessfully alleged that the HOA failed to maintain the common area pipes above their unit, causing them to suffer property damage and emotional distress when water leaked from the pipes into their unit.
The Court’s decision in favor of the HOA was two-fold. First, the Court agreed with LGP’s application of the holding in Lamden v. La Jolla Clubdominium Homeowners Association (1999) 21 Cal. 4th 249, which concerned an HOA’s board of director’s decision to “spot treat” a termite infestation in lieu of building-wide fumigation. In the Lamden case, one of the HOA’s members sued the HOA, alleging that the HOA breached its maintenance obligation. In evaluating the standard to apply to the Board’s decision, the Lamden court held that where an HOA board in good faith exercises discretion within the scope of its authority, “courts should defer to the board’s authority and presumed experience.” (Id. at 265.) In applying this rule to the case at hand, LGP successfully argued that the HOA conducted a good faith investigation of the pipe leaks and had the discretion to properly refuse repairs because it determined that the leak originated from the unit above the plaintiffs.
Secondly, the CC&Rs for the HOA included a clause stating that “[t]he Association shall not be liable for any interior water related or other damage to the Units (including personal property) unless it can be shown that the Association acted with gross negligence in any maintenance, repair or replacement project undertaken by the Association.” The plaintiffs argued unsuccessfully that this clause – an exculpatory clause – was unenforceable.
The Court found that exculpatory clauses like the one at issue are an enforceable means of allocating risk and do not violate public policy, as discussed in the case of Franklin v. Marie Antoinette Condominium Owners Association (1993) 19 Cal.App.3d 824. In making this determination, the Court distinguished cases such as Cohen v. Kite Hill Community Association (1983) 142 Cal.App.3d 642, wherein the court in that case held that a much broader clause, which purported to immunize the HOA from the consequences of all actions as long as they were taken in good faith, violated public policy.
LGP successfully persuaded the Court to find that the contractual allocations of risk were “reasonable and fair to the condominium owners as a whole,” since the owners reduce their own risk as members of the HOA. The result we achieved for our client in this case exemplifies a trend we are seeing in California where courts continue to recognize the need to provide protection to volunteer board members of nonprofit associations and the logic behind protecting HOA boards absent grossly negligent conduct.
Wakako Uritani, Esq. is a Partner based out of LGP’s San Francisco office. She was second chair in a trial with Lisa Cappelluti, Esq., a Managing Partner of LGP’s San Francisco office. Wakako can be reached at 877.229.9800 or firstname.lastname@example.org.