HOA boards cannot escape wrongful acts by their managers

Given the fact that the HOA manager and/or firm acts “in place” or “on behalf of” the board under a contractual relationship that explicitly identifies the manager as an “agent” or “management agent,” the HOA can be held liable for the acts of its manager. (See study of Arizona management contracts).

Under tort law (the common law of wrongful acts) of vicarious liability (the tort doctrine that imposes responsibility upon one person for the failure of another) and respondeat superior, the board cannot ignore, walk away or refuse to take corrective action action against the manager without incurring liabilities.

First, from the HOA’s obligations, under the officers and directors duties to act in good faith and as a prudent man, the board is obligated to act against its manager where state laws and the governing documents have been violated, or when the manager is clearly committing wrongful acts, like making false statements, harassing a homeowner, etc.

Second, let’s look at what the Restatement (3rd) of Agency (2006) has to say about the liabilities of the agent and principal (manager – board). (Of course, one would not expect to see this material covered in any government sponsored seminar, or manager licensing education, like at the Leadership Centre in Phoenix, which is supported by the towns of Chandler, Mesa, Gilbert, Queen Creek, Apache Junction). “Direct liability” refers to suing the party as such. The main points are summarized below:

¶ 7.01 An agent is subject to liability to a third party (homeowner) harmed by the agent’s tortious conduct.

¶ 7.03 (1) A principal is subject to direct liability to a third party harmed by an agent’s conduct when . . .

(a)(ii) the agent’s conduct, if that of the principal, would subject the principal to tort liability; or . . .
(b) the principal is negligent in selecting, supervising, or otherwise controlling the agent;
(2) A principal is subject to vicarious liability to a third party harmed by an agent’s conduct when . . . the agent commits a tort when acting with apparent authority in dealing with a third party on or purportedly on behalf of the principal.

¶ 7.05 (2) When a principal has a special relationship with another person [as the board with a homeowner], the principal owes that person a duty of reasonable care with regard to risks arising out of the relationship, including the risk that agents of the principal will harm the person with whom the principal has such a special relationship.

¶ 7.06 A principal required by contract or otherwise by law to protect another cannot avoid liability by delegating performance of the duty, whether or not the delegate is an agent.

Advertisements

The URI to TrackBack this entry is: https://pvtgov.wordpress.com/2011/10/12/hoa-boards-cannot-escape-wrongful-acts-by-their-managers/trackback/

RSS feed for comments on this post.

2 CommentsLeave a comment

  1. […] abuse, and legislation Legal-academic aristocrat – advocate exchange on HOA bad faith conduct HOA boards cannot escape wrongful acts by their managers AZ tenants have more AG protection than property owners in HOAs AZ CAI’s reaction to the “new […]

  2. […] at these seminars. For example, important info for homeowners can be found in my latest Commentary (HOA boards cannot escape wrongful acts by their managers), information regarding the relationship between the HOA and the management firm. It is is an […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: