Note: This case is based on Illinois laws and case history precedent with respect to punitive damages and the business judgment rule. (Normally, punitive damages are not awarded for breach of contract claims, but this case was a breach of fiduciary claim). I believe other states have similar laws and case history that would make this opinion valid in the respective states. However, the decision is not for publication or use as binding precedent.
It reflects a common sense approach to justice under the law and not a decision to uphold the view that the HOA can do nothing wrong; and that the HOA always acts in the best interest of the HOA’s obligation to all the members.
Plaintiff must ask for punitive damages.
The issue: Over a 2-year period, condo ignored homeowner’s repeated requests for assistance in addressing water damage, forcing homeowner to incur expenses to make repairs and to hire an attorney to seek condo reimbursement. Punitive damages against the condo were sought.
The Laws: Condo board’s breach of fiduciary duty; punitive damages award for willful or evil motive or reckless indifference to rights of others; business judgment rule.
Decision: Affirmed trial court decision against condo for breach of fiduciary duty to homeowner, and the award of punitive damages amounting to $22,000 above the damages of $5,497.
Discussion by the Court:
“The purpose of punitive damages is not compensation, but punishment of the offender and deterrence of the wrongdoer and others. Punitive damages may be awarded ‘where the defendant’s conduct is willful or outrageous due to evil motive or a reckless indifference to the rights of others.’ “The parties agree that a trial court may award punitive damages in a breach of fiduciary duty case.
“[The trial court] found the Association ‘acted with reckless indifference to the rights and needs of [plaintiff] who was forced to use her own funds to repair an apartment and then hire a lawyer to help her recover her reasonable cost.’”
[Business judgment rule opinion].
“We note here that the Association urges us to find an abuse of discretion [judge overstepped his authority] because the award conflicts with its business judgment. ‘Under the business judgment rule [. . .] absent evidence of bad faith, fraud, illegality, or gross overreaching, courts are not at liberty to interfere with the exercise of business judgment by corporate directors.’
“The rule protects directors who have been careful and diligent in performing their duties from being subjected to liability for honest mistakes of judgment. . . . That is not what occurred in this case, where the Association was neither diligent nor careful in performing its duties, but instead chose to ignore the plight of [plaintiff].”
Comment: Punitive damages are the only realistic method whereby homeowner’s can impose a meaningful detriment to continued board abuse, as state laws do not punish the HOA board for violations of state laws or the governing documents.
Case: Shuh v. Plaza Des Plaines Condominium Assn, No. 1-13-1999 (IL App. 1st Dist. July 24, 201) (Thanks to HOA Member Services, “This website is designed to provide people with all the information they need to understand and enhance their experience of working with or living in a common interest development that is governed by a homeowners association.”)