Reasonable Actions by HOA Directors are Protected by the Business Judgment Rule

This case involved a dispute between a condominium owner (“Owner”) and his homeowners association (“Association”) over an air conditioning system (“HVAC System”) owner installed on his patio adjacent to his unit. Because the installation required cutting through an exterior wall, which was a “common element,” and also placement of the unit on the patio, which was a “limited common element,” approval for the installation had to be given by Association’s Board of Directors.

In the summer of 2014, Owner submitted a request for Association’s approval of Owner’s installation of the HVAC System. Association’s Board waited to respond to Owner’s request until after it had researched potential noise and appearance issues that it was concerned about. In June of 2015, Association’s Board approved the installation of the HVAC System by Owner on the condition that Owner sign a binding agreement that was to be prepared. Thereafter, Association’s Board decided to draft a Memo of Understanding (MOU) that it wanted Owner to sign before the installation of the HVAC System, if the MOU was available. If the MOU was not available before the installation was to take place, Owner would have to sign it after the system was installed. The parties intended the MOU to constitute a binding agreement. Because the MOU was not available for signing by Owner before the installation, Owner went ahead and had the HVAC System installed without having first signed the MOU.

In July of 2015, Association’s Board approved a draft of the MOU and decided to have it reviewed by Association’s legal counsel.  More than a year later, in September of 2016, Association’s Board was still discussing how to protect the Association from liability when an owner installs an HVAC System. The directors discussed whether it would be best for Association to proceed with the MOU, or alternatively, with the drafting of a covenant or an amendment to Association’s Declaration. On advice of legal counsel, Association’s directors elected to use a covenant. The directors then moved to have legal counsel complete the necessary covenant for presentation to Owner.

In December of 2016, Association sent the completed covenant to Owner and he refused to sign it. After Owner repeatedly refused to sign the covenant, Association notified Owner that it was going to take action to force the removal of the HVAC System. To preempt such action, in May of 2017 Owner filed suit against Association alleging it had breached a duty of ordinary and reasonable care in its actions and should be estopped by the Court from removing the HVAC System. In January of 2018, the Court granted Association summary judgment and dismissed Owner’s claims. Owner then appealed the decision of the trial court.

In his appeal, Owner contended: