Business judgment rule; understanding the courts

The intent of this title is to highlight the need to carefully read and understand legal documents –  knowing what is said and what is not said in statutes, in court decisions and opinions, and in contracts.  It is human nature for people to hear, see, or read what they want to and miss the real message.

Tutorial

If you seek to analyze, not merely read, a legal document then attentions must be paid to what I refer to as “word games.”  By that I mean the modification and extension of  the traditional meaning of words to support an argument or position; the parsing of sentences involving the effect of punctuations – commas, semi-colons, etc., — on phrases and clauses.

A simple example:

“I saw that she was busy and prepared to leave.
“I saw that she was busy, and prepared to leave.

“Without a comma, the reader is liable to think that “she” was the one who was prepared to leave.”

In the real world, documents can contain mult-line sentences with many commas and semi-colons, where your opponent will argue for one interpretation and you the other. In our example, who is right? The first or the second choice?  With many legal documents written by “writers,” the publicized author may not know at all. This happens often in complex legislative bills.

Business judgment rule (BJR)

(See below for an explanation of BJR).

Applying the above, let’s look at the wording of the WA Supreme Court’s recent opinion in Bangerter v. Hat Island that sidestepped the question of applying the business judgment rule to HOAs. 

At issue was plaintiff’s interpretation of the covenant for assessments that allowed the BOD “to charge and assess its members on an equitable basis.”  Bangerter said “equitable basis” meant at a rate based on home value, like your real estate tax; the BOD interpreted “equitable basis”  to mean the same assessment for all members.  The court held that the BOD’s interpretation was valid, deferring to the BOD as consistent with the BJR.

But here’s how the judges presented their decision:

Whether, and if so to what extent, the business judgment rule applies to homeowners’ associations is a thorny question. Given that we can affirm on any grounds, we decline to resolve that question here and wait for a case that more squarely presents it.

While courts do not owe deference to a homeowners’ association’s interpretation of its governing documents, courts do owe appropriate deference to their reasonable discretionary decisions. . . . Accordingly, there is no cause to consider whether the business judgment rule applies.

The first paragraph is, essentially, a “punt” — not going to deal with the issue.

Yet the first sentence of the second paragraph seems to be a rejection of the BJR.    What is the fine point that the court is making, the “hair splitting”? What is the effect of, the difference, in all practicality  between no “deference . . . [to] interpretations” and “deference to . . . discretionary decisions”?  

But wait! The court upheld the BJR with its deference to BOD decisions without saying so!  WOW! Go figure.

The second sentence is an astonishing declaration that the Court is not talking about the business judgment rule!  No wonder the average homeowner has a problem understanding what goes on in the mind of judges.  Confusing?  You bet!  On purpose, I wonder!

Business judgment rule explanation

The business judgment rule helps to guard a corporation’s board of directors (B of D) against frivolous legal allegations about the way it conducts business. A legal staple in common law countries, the rule states that boards are presumed to act in “good faith”—that is, within the fiduciary standards of loyalty, prudence, and care directors owe to stakeholders. Absent evidence that the board has blatantly violated some rule of conduct, the courts will not review or question its decisions. (Investopedia).

Related reading

If you wish to pursue a more detailed understanding of the pros and cons of BJR, please read   HOAs and the Business Judgment Rule: Bad Law and Reorienting the HOA board: business judgment rule

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HOAGOV

"The Voice for HOA Constitutionality". I have been a long-term homeowner rights authority, advocate and author of "The HOA-Land Nation Within America" (2019) and" Establishing the New America of independent HOA principalities" (2008). See HOA Constitutional Government at http://pvtgov.org. My efforts with HOAs took me to a broader concern that was deeply affecting the constituionality of HOAs. Those broad societal and plotical concerns caused me to start this new blog for my commentaries on the State of the New America.

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