Court Says HOA Directors Who Misuse Their Power and Conduct Business When the Corporation is Suspended Run the Risk of Personal Liability

This case involved a dispute between two homeowners who were the only members of a two-unit homeowner’s association. Owner #1, who purchased the lower unit in 2019, filed a complaint against Owner #2, who lived in the upper unit, and the homeowners association (“Association”) alleging that they engaged in a campaign of harassment geared towards preventing her from using and enjoying her property. Owner #2 was the sole officer and director in control of the Association. In her lawsuit, Owner #1 alleged multiple acts of wrongdoing, including claims that Owner #2 and the Association denied her access to her property, refused to provide her with HOA documents, fabricated violations of the HOA rules against her as a pretext to fine her, and unlawfully recorded liens against her property.

Owner #2 succeeded in having the case ordered to arbitration based on a broad arbitration clause in the Association’s CC&Rs. The arbitrator determined that the Secretary of State had suspended the HOA from 2013 to 2020 and that Owner #2 had managed the Association in his individual capacity without any authority because the Association was suspended. The arbitrator found in favor of Owner #1 and ordered Owner #2, personally, to pay Owner #1: (i) $10,000 for denying her the use of her property; (ii) $3,500 for refusing to provide Owner #1 with HOA records; (iii) $25,000 as exemplary damages for his “bad faith” and “despicable” conduct; $23,529.19 in costs; and $130,621.25 for attorney’s fees. The arbitrator also ordered: