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 (tware@kgswlaw.com) or Justin Nash (jnash@kgswlaw.com).