At the urging of the Center on behalf of seven legal services and consumer advocacy organizations, the California Court of Appeal has ordered publication of its recent decision in Ridley v. Rancho Palma Grande Homeowners Association. The previously unpublished decision – which may now be cited – provides guidance to courts and litigants on when homeowners associations (HOAs) are and are not entitled to deference under the business judgment rule and rule of judicial deference.
At the heart of the Ridley case is an HOA shirking its contractual obligations to one of the association’s members. A common crawlspace flooded and damaged a nearby condominium, making it uninhabitable. The HOA waited more than 19 months before removing the water and beginning repairs. During that time, the HOA rejected numerous repair proposals from multiple independent contractors. Moreover, when the HOA finally initiated repairs, it acted without regard for the health and safety of workers by failing to inform contractors of a well on the property. During the bench trial, the superior court found that the HOA also attempted to manipulate experts into supporting an improper remedy for the flooding. Given the HOA’s unreasonable and bad-faith conduct, the trial court found that the business judgment rule and the related rule of judicial deference did not apply, and ultimately, found in favor of the homeowners on all claims. The Court of Appeal then affirmed the trial court’s decision in a thorough, fact-laden opinion.
The Court of Appeal’s decision applies an essential exception to the business judgment rule and the rule of judicial deference: businesses (including HOAs) are not entitled to deference in their decisions when they act unreasonably or in bad faith. Defenses under these rules may serve as helpful shields from unfounded claims; however, when the rules are asserted inappropriately, as in this case, they can delay or entirely prevent judicial scrutiny of unlawful practices and allow HOAs to shirk their contractual duties.
The Center, along with the Center for California Homeowner Association Law, Alexander Community Law Center at Santa Clara University School of Law, East Bay Community Law Center, Housing and Economic Rights Advocates, Open Door Legal, Public Law Center, and Watsonville Law Center, filed a letter explaining to the Court of Appeal why the decision merited publication. The court ultimately agreed. Publication of the Court’s opinion in Ridley will help hold HOAs accountable for unreasonable and bad faith conduct, and will protect both homeowners and tenants.
The Center welcomes the addition of this significant decision to the Official Reports.