The Business Judgment Rule Isn’t a Blank Check

By Kelly G. Richardson, Esq., CCAL, HOA Homefront Column 

The Business Judgment Rule (hereafter, “BJR” for brevity) protects directors from personal liability if the board errs, and courts have repeatedly given wide deference to HOA decisions made within the BJR. However, the BJR protections are not unlimited. 

Deference. Courts normally defer to HOA boards following the BJR, as the State Supreme Court said in 1999 in Lambden v. La Jolla Shores. In the Lambden case, a homeowner contended the board pursued the wrong response to termite problems and sued the HOA. The court held that so long as the board followed the BJR, “courts should defer to the board’s authority and presumed expertise.” That discretion, per 2025’s Eng. v. Opperman decision, is not limited to maintenance but extends to all board decisions.

Judicial deference is essential, enabling boards to govern their associations without being sued any time a neighbor disagrees. This includes decisions regarding whether to pursue enforcement litigation, confirmed in the 1977 Beehan v. Lido Isle decision. That appellate court ruling supported the board’s BJR discretion in deciding not to pursue a rule violation deemed not worth the effort. Associations also have reasonable discretion as to how they deal with CC&R violations, under the 2007 ruling in Haley v. Casa Del Rey. 

Discretion is NOT Absolute. The BJR is not a blank check justifying every HOA action. In each of the following cases, boards unsuccessfully argued the BJR protected their decision, but the appellate court disagreed.

Discretion cannot override the law. In 2010’s Dover Village v. Jennison, the board determined a leaky condominium sewer pipe was “exclusive use” and thus was the member’s repair responsibility. The HOA contended the court must defer to its decision. However, the appellate court disagreed, saying, “(t)here is an obvious difference between a legal issue over who precisely has the responsibility for a sewer line and how a board should go about making a repair that is clearly within its responsibility.”

Boards may not ignore CC&R’s. A dispute arose in the Marquesa at Monarch Beach HOA regarding trees, as that board invoked the BJR to defend its exemption of some palm trees from a CC&R-imposed tree height limitation. Homeowner Ekstrom challenged this interpretation and the appellate court in 2008 ruled: “The Board's interpretation of the CC&Rs was inconsistent with the plain meaning of the document and thus not entitled to judicial deference.” So, boards cannot disregard their governing documents.

Cannot Ignore Law. In Ritter v. Churchill Condominiums, the board argued the BJR protected its attempt to force a homeowner to repair a building code violation (newly discovered hole in the common area floor/ceiling structure between floors of a tower). The appellate court in 2008 disagreed, holding that the BJR does not allow HOAs to ignore common area defects and building code violations. 

Inaction Is Not Discretion

In 2011’s Affan v. Portofino Cove case, a condominium owner had for six years suffered repeated sewage floods from common area plumbing. Each time, the HOA repaired the damage but never tried to find and repair the cause. When Affan finally sued, the HOA argued the BJR protected it. The appellate court disagreed, noting that “the Association’s inaction was not the result of any deliberative process.”

Boundaries. Boards cannot invoke the BJR to ignore law, governing documents, or the problem.