Palm Springs Villas II Home Owners Assn. v. Parth

Defendant was not entitled to summary judgment on breach of fiduciary duty because triable issues of fact existed on whether defendant’s failure to properly investigate unlicensed contractor was ultra vires and/or shielded by the business judgment rule. The trial court erred in granting defendant, who had been president and a director of the plaintiff homeowners’ association, summary judgment on plaintiff’s claim for breach of fiduciary duty.  A triable issue of fact existed as to whether defendant’s actions were ultra vires, and thus not shielded by the business judgment rule, because the actions were not in compliance with or authorized by the association’s governing documents.  Also, there were triable issues of fact as to whether defendant had made a reasonable investigation before deciding on actions affecting the association—e.g, failing to inquire if a contractor was licensed before hiring it to repair the condos.  Reasonable diligence in acquiring needed information to make an informed decision is a precondition which must be met before a director can invoke the business judgment rule to shield her decision from judicial review.

California Court of Appeal, Fourth District, Division 1 (Aaron, J.); June 21, 2016; 2016 WL 3437593

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