Court Permits Breach Of Fiduciary Duty Claim To Proceed Against Board Members In Their Individual Capacity
The board members of a cooperative, condominium, or homeowners’ association are frequently shielded from individual liability for board decisions by doctrines including the Business Judgment Rule. Nonetheless, under some circumstances, the courts will hold board members personally liable for damages for misconduct. Tucciarone v. Hamlet On Olde Oyster Bay Homeowners Ass’n, Inc., NYLJ 1202721564494 (Sup. Ct. Nassau Co. Mar. 10, 2015), illustrates the type of allegedly arbitrary decision-making that, if proven at trial, may give rise to liability.
In this case, the directors of a homeowner association voted to penalize the plaintiffs, a homeowner couple, for allegedly allowing the “spread of invasive bamboo planted on their property.” The sanctions imposed included monetary fines as well as depriving plaintiffs of access to amenities, particularly parking. However, the plaintiffs asserted that they were unable to address the spread of bamboo to a neighboring owner’s property because the neighbor was uncooperative and would not give them access to his property – a situation outside plaintiffs’ control.
The court granted plaintiffs a preliminary injunction against enforcement of the penalties, and also allowed them to amend their lawsuit by adding a claim for breach of fiduciary duty against the individual board members. In allowing the amendment, the court found that the record contained evidence of the board members’ lack of good faith, including that they had voted to impose penalties on plaintiffs for a situation they were powerless to correct. The board members also allegedly disregarded the homeowners’ association’s rules and regulations, as well as the decision of a grievance committee that had voted to overturn the penalties. That court stated that, while it was mindful of the Business Judgment Rule, the homeowners had shown enough evidence of the board members’ possible lack of good faith that their claim should be allowed to proceed.
However, the court denied plaintiffs permission to pursue the breach-of-fiduciary-duty claim against the homeowners’ association itself, because “the Board entity, as a corporation, owes no fiduciary duty to individual unit owners.”