Court Says Association’s Actions Were Protected by the “Business Judgment Rule”

New York Supreme Court, Appellate Division decision (October 18, 2017).

In this case homeowners sued their homeowners association and the individual members of the association’s board of directors for damages based on claims of breach of contract and breach of fiduciary duties.  Interestingly, the plaintiffs’ claims against the association and the directors were precipitated by conditions that were caused by the plaintiffs.

Factually, the plaintiffs had planted bamboo on their property but it subsequently spread to the property owned by adjacent homeowners and onto common areas of the association’s property. In their complaint, the plaintiffs alleged that they tried to control the spread of the bamboo they had planted but they were not successful.  The association then imposed fines on the homeowners as a result of the bamboo infestation they had created. The homeowners subsequently filed their lawsuit against the association and the directors contending that: (i) the fines that had been imposed were unauthorized and excessive; and (ii) the association breached their duties under the governing documents and the directors breached their duties by failing to remediate the problem.  The association and the individual directors moved for summary judgment but the trial court denied the motions. Thereafter, the association appealed.

The appellate court stated that when reviewing the actions of a homeowners association, courts must apply the “business judgment rule” and limit its inquiry to: