Court Exonerates Board Member in Multi-Million Dollar Claim

Kulik Gottesman Siegel & Ware LLP (“KGSW”) is pleased to announce that Thomas M. Ware II and Justin Nash successfully defended Erna Parth, a former homeowners’ association volunteer director and President, against a multi-million dollar damage breach of fiduciary duty claim brought against her by her own homeowners association.  After a 25 day bench trial, and over six years of highly contested litigation, judgment in favor of Ms. Parth was entered on December 14, 2018.

This action arose out of plaintiff Desert Protection Security Service’s April 11, 2012 filing of a complaint against the Palm Springs Villas II Homeowners Association (“Association”) for breach of contract.   Desert Protection Security Service (“DPSS”) asserted that it was entitled to recover damages based on the Association’s alleged improper early termination of a one- year security services contract extension signed by Ms. Parth as Association President.  

The Association filed a cross-complaint seeking indemnity from Ms. Parth claiming that the Board of Directors had not properly authorized Ms. Parth to execute the contract extension on its behalf.   Although the Association ultimately settled the complaint with DPSS in exchange for $12,500, the Association’s  cross-complaint included a breach of fiduciary duty cause of action against Ms. Parth seeking  damages arising from: (1) alleged construction defects arising from the 2005 hiring of a roofing contractor; (2) finance charges arising out of Ms. Parth’s execution of loan documents for three separate construction loans (two in 2007, one in 2010) used to make common area repairs but allegedly obtained without membership approval; (3) alleged overpayments to the Association’s landscaping contractor; (4) the alleged early termination of a former property manager; and (5) execution of the DPSS security contract.  Prior to trial, Association asserted that its damages exceeded $4.5 million.

At trial, the Association requested $1,933,025.78 in damages against Ms. Parth.  The trial court rejected each and every one of the Association’s damage claims.  Instead, the Court found that Ms. Parth was protected by the business judgment rule and exculpatory clauses in the CC&Rs and Bylaws as she acted in good faith and exercised reasonable diligence with the care of an ordinarily prudent homeowners’  association director in like circumstances.  The Court also found that Ms. Parth was not the legal cause of most of the Association’s claimed damages.  Most of her conduct was performed with the knowledge, consent and approval of the Association’s five member Board of Directors.  In addition, many of the claims were barred by the statute of limitations as they occurred more than four years prior to the filing of the cross-complaint in May 2012.  In any event, the Association failed to establish that it incurred any actual damages arising from Ms. Parth’s conduct.

For those interested in learning more details about the trial, an electronic copy of the Court’s statement of decision can be obtained by e-mailing either Thomas M. Ware II ( or Justin Nash ( 

Homeowner Associations Have Very Broad Power to Exercise Architectural Control

By Glen Kulik

One of the most important duties of any homeowner association is the exercise of architectural control.  The concept is sometimes hard for new owners to understand because they tend to think, “This is my property and I can do whatever I want with it.”  That is absolutely not the case in California – in fact, the foundation of any common interest development is that you give up your right to do whatever you want in exchange for knowing that your neighbor cannot just do whatever he wants.

Your association can formulate rules that are right for your community, regardless of what the outside world does. In most cases, an association’s architectural rules can be stricter than what the city requires. As the California Supreme Court noted in Nahrstedt v. Lakeside Village Condominium Association, 8 Cal. 4th 361, 374 (1994),“the subordination of individual property rights to the collective judgment of the owners association together with restrictions on the use of real property comprise the chief attributes of owning property in a common interest development.” Thus, whether you live in a planned development of single family homes, a building with stacked condominiums, or a development with side-by-side townhomes, if your proposed alteration or improvement will be visible to anyone else, could impact your neighbors or their property, or could impact the common areas, the association is empowered to regulate it and has vast discretion to approve or disapprove any such alteration.

1. The Association has very broad authority in the area of architectural control.

The scope of an association’s control over what is built or altered is very broad, almost unlimited. If the decision is made in good faith, the association is acting within the bounds of California law even if the decision is not entirely fair or reasonable.  The only time a decision is not in good faith is if it is “arbitrary or capricious,” which means as a practical matter that it is discriminatory.  This occurs, for example, when an association approves a certain improvement for one owner but denies another owner the right to make that same improvement because of his or her race, religion, ethnicity, national origin, or gender.

Aside from these obvious forms of discrimination, merely distinguishing between the properties of two different owners, and approving the request of one but denying the identical request of the other, is not always discrimination.  Where there is a rational basis for distinguishing one property from another, it is permissible to do so.  For example, installing hardwood floors in a first floor condominium is very different from installing such flooring in a second floor unit where someone is living below.  Likewise, in a community of single family homes, approving a new 10,000 foot home on a 20,000 square foot lot is different from approving that same home on a 40,000 square foot lot.

2. Controlling What Can Be Built vs. Controlling the Construction Process.

There are two components to an association’s power to exercise architectural control.  First, there is the authority to decide what work is or is not approved.  Second, there is the power to control how the work is done, based on a concern for others who live in the building or community who could be disturbed or inconvenienced by the construction.

An owner does not have the unbridled power to decide how his or her construction project will be conducted. The association can set rules to protect  other residents from undue disturbance while the work is in progress. Of course, the association wants to be fair to the person doing the work, but that does not mean he or she can proceed without regard to the rights of his or her neighbors.

There are myriad regulations that an association may adopt.  There should be a limit on construction days and hours.  Monday through Friday from 7:00 a.m. to 6:00 p.m. is typical.  Some associations allow construction on Saturdays, others do not.  Construction is never permitted on Sundays or national holidays.

The association can limit the number of construction projects that are in progress at any one time. This is done in various ways.  For example, in a condominium development, there can be a rule that no more than one project per floor, or three projects per building, can be undertaken at once.  In a planned development, there can be a rule that no more than two major projects may be undertaken at the same time, per street or within a certain distance of each other.

The association can limit the number of construction vehicles that may enter the development for any one project. Not only does this create a burden at the entrance, over time it leads to premature deterioration of the roads and inconvenience to the residents. Some communities charge a fee for especially large or heavy vehicles that want to enter. It is common for contractors to have to arrange for their workers to meet at a central location and car pool to the construction site so the community is not burdened with too many vehicles entering the development or parking there at any one time.

Finally, most associations have a time limit within which a project must finish once it is approved.  Most associations are very strict about the time limits, and if the deadline is exceeded for any reason, a stiff “per day” fine is imposed for every day that passes until completion.

3. Written Rules or No Written Rules.

When it comes to architectural control, there are two kinds of communities: Those that have written architectural standards and those that do not.  There are advantages and disadvantages to both approaches.

If your association has written standards it is easier to decide whether a proposed project will be allowed and the owners have a better idea in advance what alterations are or are not approvable. There is greater certainty in the approval process and it is easier to be consistent. The downside is that written rules can never anticipate and cover every issue and scenario, so when there is an omission it is more likely to create uncertainty.  Further, creating one set of rules and hoping it will suffice as an adequate “one-size-fits-all” approach to what should be approved can be problematic. Often there are physical characteristics which vary between units or lots, for which it is hard to prescribe a single blanket standard. One crucial caveat is that if your association has written architectural standards, they must be followed or the association could get into legal trouble.  Thus, there is less flexibility when there are written standards.

If your association does not have written standards, the architectural committee has a right to make subjective decisions so long as they are made in good faith. The committee can take into consideration any and all relevant nondiscriminatory factors, and as long as the decision is not arbitrary or capricious, the decision will be upheld. One of the leading cases in California on this subject is Dolan-King v. Rancho Sante Fe Association, 81 Cal. App. 4th 965 (2000). That case established two important legal principles:  First, it is the owner who bears the burden of proving that the decision was arbitrary or capricious under the totality of the circumstances. This is determined not by the decision’s impact on the individual owner but from the vantage point of what is right for the community as a whole.  Second, a decision is arbitrary and capricious only when “it bears no rational relationship to the protection, preservation, or purpose of the affected land.”  This is a heavy burden for the owner to have to meet. Thus, there is less certainty and clarity when there are no written standards, but there is greater flexibility in the decision making process, and the association is less likely to get tripped up legally when there are no written rules that have to be followed.

Incidentally, even if your association has broad written standards, they can never cover every conceivable request.  If the written standards do not address an issue, it does not mean the association is prevented from disapproving that change. It only means that for this item, the committee must follow the same subjective good faith decision making process that applies when there are no written standards at all.

4. Conclusion.

The whole point of moving to a common interest development is to live in a controlled, regulated environment where the members of the association get to decide for themselves, through their governing documents, what environment they want to foster and what rules and procedures are right for their community, regardless of what other communities do or don’t do.  In court, judges often remind homeowners that when they choose to live in a planned development or condominium project they receive many advantages but they also give up certain rights.  In this setting, the needs and desires of any one individual are subordinate to what is perceived to be in the best interest of the community as a whole.  That rule applies to architectural control, where the architectural committee has vast discretion to make decisions that are in the best interests of the development regardless of their perceived impact on any one individual.

California Court of Appeal Rules On Whether a Homeowners Association is Required to Accept Partial Payments

On October 14, 2014, the Court of Appeal issued a published decision in the case Huntington Continental Townhouse Association, Inc. v. Joseph A. Miner (Court of Appeal Case No. G049624).

The case addressed whether a homeowners association must accept partial payments to reduce delinquent assessments. The Court of Appeal held that under Civil Code section 5655(a), a homeowners association must accept a partial payment made by an owner and must apply that payment first to any assessments owed, and only after assessments are paid in full, then to the fees and costs of collection, attorney’s fees, late charges or interest. The Court further held that the obligation to accept partial payments continues after a lien has been recorded against an owner’s separate interest for collection of delinquent assessments. The practical effect of the Court’s holding is that if the partial payment brings the delinquent assessments to below $1,800, any pending foreclosure proceedings would be halted, and the homeowners association would have to start over with the appropriate foreclosure notices, if and when the delinquent assessments once again reach or exceed $1,800. This case will have an impact upon homeowners associations and their management companies who have historically refused to accept partial payments from homeowners once the account has been turned over to collections and/or a lien has been placed upon the owner’s property. In light of the Court’s ruling, the better practice is to accept a partial payment and to advise the homeowner that the association is not waiving any of its legal rights in collecting any unpaid debt.