Reorienting the HOA board: business judgment rule

Mentoring: Reorienting HOA board – business judgment

consulting SIG image1HOAs love business judgment rule (BJR) that can be found in too many court opinions including, as a prime example, the infamous NJ Supreme court opinion in Twin Rivers.

First, the business judgment rule protects members from arbitrary decision-making. . . . Our Appellate Division has uniformly invoked the business judgment rule in cases involving homeowners’ associations.[1]

In CAI’s amicus brief in the above case, argued that “the settled legal principles” of the business judgment rule

permit community association trustees to fulfill their fiduciary duties and to exercise judgment in balancing the needs and obligations of the community as a whole with those of individual homeowners and residents, without undue judicial interference.[2]

As can be noted, the CAI brief equates the HOA interests with the members’ interests and that it is acting in the best interests of the members subject to “the needs and obligations of the community.” Sort of confusing doubletalk me thinks.

Wayne Hyatt is quoted (p. 9) that the business judgment rule

defends the procedure under which the board has acted and the right of the board to be the sole arbiter of the issue involved. The result is that if the procedure is valid, the court will not second guess the substance of a board’s action. Consequently, the court upholds the decision without subjecting the wisdom of the board’s action to judicial scrutiny.[3]

In California’s Lamden v. La Jolla,

[A] hallmark of the business judgment rule is that, when the rule’s requirements are met, a court will not substitute its judgment for that of the corporation’s board of directors. . . . [A]nyone who buys a unit in a common interest development with knowledge of its owners association’s discretionary power accepts ‘the risk that the power may be used in a way that benefits the commonality but harms the individual.’ “[4]

I cannot overstate the profound damaging effect by the courts as they continue to ignore HOAs as de facto governments and treat them as a pure real estate corporation. The School has performed an excellent job in creating a supportive mindset. Their demonstrable ignorance can only stem from the thorough indoctrination by the CAI School of HOA Governance that flows from the HOA “bible,” The Homes Association Handbook (cover page link).[5]

The BJR serves to protect the BOD from member lawsuits where the issues center on the BOD’s broad discretionary powers. Essentially the basis of BJR presumes that the BOD knows better about managing the HOA than the judge and, after all, the members chose the directors. In a cop-out not me attitude the judge simply goes along with the BOD’s position. YOU LOSE!

It is a very effective argument, tactic, because the homeowner and his attorney do not challenge this view that the BOD knows best. There is no rebuttal arguing that the BOD is practicing bad management, or is acting inconsistent with their obligation to act in members best interest – not in the best interest of the HOA. There is the presumption that the members’ interests are totally found in the governing documents and none other exist. It is an attitude in contrast to our Bill of Rights, Amendments 9 (enumeration clause) and 10 (rights delegated to the people).   Under the HOA “constitution,” any non- specified prohibitions or rights belong to the HOA and not its members.

Once again I’m touching upon a defect in the HOA legal scheme. Under corporation law the BOD is responsible to the HOA association. True! But the CC&Rs override that law. Why?  Let’s not forget that we have a PRIVATE contract agreed to by the members requiring the BOD to function in the best interest of the members.[6]  The private contract defense works for the members and not the BOD What’s fair is fair! Right?

In order to move past many of the persistent HOA problems and issues the BOD, as well as the legislators and courts, must adjust their views and mindset with respect to the HOA scheme. To restore equality before the law HOAs must be viewed as another form of local public government. The reorientation of the BOD comes first. There are ample materials, courses, seminars and public education, a substantial precedents and history on how to function as a public government and still protect and retain the private nature HOA community.

Notes

[1] CBTR v. Twin Rivers, 929 A.2d 1060, II, (N.J. 2007).

[2] CAI amicus brief, CBTR v. Twin Rivers (N.J. Super. App. Div. Docket C-121-00 2004).

[3] Id.

[4] Lamden v. La Jolla, 980 P.2d 940, Calif. 1999).

[5] The Homes Association Handbook, MARYJO CORNISH, Editor, Urban Land Institute, TB#50 (1964). Its Foreword omits any concern about the homeowners or constitutional government. See cover pages that provide evidence of lack of local government concern as part of the purpose of TB50. See Analysis of The Homes Association Handbook.

[6] See “HOA contractual mission” in Restructuring HOAs – intents and purposes.

3 thoughts on “Reorienting the HOA board: business judgment rule”

  1. History of world civilizations of the past teach us a sad story of destruction. Just look at the ruins left behind by various peoples of past societies of long ago who were once a thriving metropolis are now remnants on display at museums.

    Many of these nations and societies flourished for a season but something happened to promulgate their downfall. What do we know in 2020 A.D. about this phenomenon?

    We know that wherever Good and Prosperity is prevalent for a season Evil inevitably intervenes and destruction leaves ruins.

    ” Disguise it as you may the controversy between GOOD and EVIL is one between POWER and LIBERTY…it is survival or destruction. ”

    So, here we are in 2020 living in a world of 8 billion inhabitants who speak about 200 languages each seeking POWER to control. The political persuasions between liberalism and conservatism, as history shows, inevitably leads to WAR and the death and destruction of nations and societies.

    Just look at the political actors today: USA, CHINA, SOVIET UNION, EUROPEAN UNION, UNITED NATIONS, etc. The world has never been in a more complex disputation about how to obtain power and control.

    This time, like all times of the past, is a very good one…if we but knew what to do with the opportunity to achieve and maintain American intellectual independence and prosperity and LIBERTY.

    IF THERE IS ANY PERIOD OF TIME IN THE HISTORY OF THE WORLD TO BE BORN ON THIS EARTH…IT IS NOT IN 2020.

    The prophets of God have given the inhabitants of this earth the Great Plan of Happiness which is explained in the Holy Scriptures. It is recognized as the Gospel of JESUS CHRIST and when applied by any society they are blessed and prospered and preserved against their enemy who seeks to destroy them. But when a society or nation rejects the true gospel of Jesus Christ history shows they are destroyed by their enemies.

    Barak Obama, an atheist and advocate of the LGBTQ and BLM movements said while President of the USA…’ America is not ( or no longer ) a Christian Nation.’ However, the Founding Fathers who most Americans respect were Christians.

    Today’s Senators and Congressman in the U. S. Congress represent a mixed ethnic culture of various religions including atheists and gives rise to the disputations about which party should be in POWER and CONTROL. Is our motto ” In God We Trust ” been abandoned ? Have Americans been forsaken by God ?

    It appears if the Democratic Party gains control after the November 2020 General Election and assumes power over the White House and Congress the United States will be in jeopardy of becoming subject to the power of EVIL. If so, the USA will suffer the consequences of destruction like the ancient society of Jerusalem as published in the Bible’s Old Testament Book of Isaiah described in Chapter 3: 8-9:

    ” For Jerusalem is ruined, and Judah is fallen because their tongue and their doings ( lifestyle ) are against the Lord, to provoke the eyes of his glory. The show of their countenance doth witness against them; and they declare their sin as Sodom ( LGBTQ ) and they hide it not ( gay pride ). Woe unto their soul! for they have rewarded EVIL unto themselves ( destruction ). Verse 25-26: Thy men shall fall by the sword, and thy mighty men in the war. And her gates ( Jerusalem ) shall lament and she ( Jerusalem ) being desolate shall sit upon he ground. ”

    The prophet Isaiah was accurate in his ‘ warnings ‘ because ancient Jerusalem was destroyed and taken captive by their enemies. Some of the remnants ( ruins ) of this destruction are in the museum for all the world to see. Note: Judah means the Jews.

    It appears that America in 2020 is like Jerusalem of old ( 700 B.C. ) because it’s inhabitants have provoked the eyes of God’s glory by ignoring God’s laws. It seems the politicians and inhabitants of the USA have ignored the Ten Commandments which are made manifest in the United States Supreme Court House in Washington D.C. This building displays the figure of the ancient prophet of God, Moses, who warned ancient Israel it would be destroyed if the people violated the laws of God.

    In sum, all civilizations and societies who have provoked the eyes of God’s glory by ignoring God’s laws and His prophets have been destroyed and the ruins are on display in the museums of the world.

    Go figure!

    warrioragent

    ________________________________

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