DIRECTORS AND OFFICERS

BUSINESS JUDGMENT RULE
“If a board of director acts “in good faith” and is thus protected from claims by the “business judgment rule” does that also mean that the association is protected from claims?”

No. The “business judgment rule” (based on Corporations Code § 7231) is not intended to protect “entities.” Instead, it protects directors provided they have met certain standards of conduct (acted in good faith, asked proper questions, relied on qualified consultants, etc.). By contrast, the liability of an association generally depends on whether it has acted reasonably and in accord with its legal obligations under the CC&Rs, the Davis-Stirling CID Act or other laws.

Ritter & Ritter, Inc. v. The Churchill Condominium Association (2008) illustrates the different liabilities of the association and its directors. In that case, the association was found liable for failing to properly maintain a common area concrete slab under an owner's unit . The directors were not found liable for their mistaken belief that the obligation fell on the owner. Generally, courts will “defer” to routine maintenance decisions made by directors and will not find them liable for what the association does if they (1) perform their duties as director in good faith; (2) act in a manner the director believes to be in the best interests of the corporation; and, (3) act with such care as an ordinarily prudent person in a like position would use under similar circumstances.