What Duty of Care Does a Homeowner Association Owe Its Members?
| Publication year | 2016 |
| Pages | 0018 |
What Duty of Care Does a Homeowner Association Owe Its Members?
Attorneys in Georgia increasingly are being asked not just to defend lawsuits for unpaid assessments and fines for alleged violations, but to advise homeowners whether to sue their associations before being sued. But under what cause of action?
BY JULIE LIBERMAN
Members of homeowner associations and condominium associations frequently clash with these entities' boards of directors over the use of both private and common property in their communities. These disputes may concern, for example, responsibility for maintaining and repairing common elements in a condominium, such as roofs, swimming pools, elevators or entryways, or relatively minor matters such as the permissible color of a homeowner's front door. Regardless of the magnitude of the matter, homeowners often find themselves in the unenviable position of facing an unyielding board composed of their neighbors, and often feel they are the victims of arbitrary or draconian decisions that have very real effects on their property rights or assessment obligations without due process.
The results can be harsh. The board, for example, might require that a homeowner pay to maintain property in an area where ownership or responsibility, or both, are in dispute, or change the way the homeowner has used his property for decades, with daily fines imposed for failure to comply. Frequently, the homeowner concludes that the board has abused its power and that the board's decision-making process lacks fairness.
Homeowners often feel a board composed of their neighbors should be held to the same standards and levels of compliance with procedures to which the homeowners are held. For example, the association can levy fines for a homeowner's failure to store a trash can in the precise location dictated by the governing documents. But Georgia law is more forgiving when it comes to a board's failure, for example, to precisely follow its own requirements for providing notices of meetings or voting procedures.
A declaration of covenants is a contract to which the association and its members are equally bound, and as such, the covenants are interpreted according to the general rules of contract interpretation.[1] Generally speaking, a board is required only to substantially comply with the procedures set forth in the community's governing documents.[2] While a homeowner may conclude that if the board fails to follow those rules and procedures, the board is in breach of contract or a duty, the conclusion might not be legally accurate. Adding to the homeowner's difficulties, most neighborhood governing documents are drafted to ensure a contractual basis for an award of attorney fees to the association, without the need to prove defendant's bad faith,[3] upon prevailing in litigation against
Whether a fiduciary duty is owed by the board to the homeowners is a nuanced question and a legal issue ripe for development in Georgia.
a homeowner for collection of any unpaid assessments or fines. Whether a fiduciary duty is owed by the board to the homeowners is a nuanced question and a legal issue ripe for development in Georgia.
Even if only as a matter of principle, homeowners are more willing than ever to stand up to their homeowner associations and to seek legal counsel when doing so. Attorneys in Georgia increasingly are being asked not just to defend lawsuits for unpaid assessments and fines for alleged violations, but to advise homeowners whether to sue their associations before being sued. But under what cause of action? When a board's failure to follow the covenants implicates property rights, or the misuse of association funds, do fiduciary duties come into play? Whether a fiduciary duty is owed by the board to the homeowners is a nuanced question and a legal issue ripe for development in Georgia.
What Is a Breach of Fiduciary Duty under Georgia Law?
The general concept of fiduciary duty under Georgia law is beyond this article's scope. However, certain cases involving homeowner associations have looked to general statutory and case law on fiduciaries. It is, therefore, useful to examine those general concepts to understand current Georgia law of fiduciary duty in the context of community associations.
Under Georgia tort law, a fiduciary duty can be established when the parties are in a "confidential relationship." This defined is by statute as follows:
Any relationship shall be deemed confidential, whether arising from nature, created by law, or resulting from contracts, where one party is so situated as to exercise a controlling influence over the will, conduct, and interest of another or where, from a similar relationship of mutual confidence, the law requires the utmost good faith, such as the relationship between partners, principal and agent, etc.[4]
The statute sets forth business partnerships and principal and agent relationships as examples of confidential relationships. Georgia case law recognizes other confidential relationships, including relationships between a trustee and beneficiaries of a trust,[5] between spouses,[6] and between a clergyman and members of his church.[7]The list is not exclusive.
The statute refers to an exercise of one party's "controlling influence" over another, but the control at issue has a narrow application. It does not, for example, concern the parties' relative bargaining power. When one party clearly possesses superior control over information, and is better positioned to dictate contractual terms (such as employer to employee and creditor to debtor), no fiduciary duty exists because these and other business relationships are deemed arms-length.[8] Moreover, when bargaining power is indisputably unequal, such as when one party to a contract is illiterate and the other is not, a confidential relationship does not necessarily exist either.[9]
The statute's reference to a relationship of "mutual confidence" provides scant practical guidance. The Court of Appeals of Georgia has held that no fiduciary duty arises in a relationship of mutual trust and confidence in each other's integrity, which is presumed in arm's-length transactions.[10] Additionally, the mere fact that one party voluntarily reposed trust and confidence in another, alone, is not enough to establish the relationship.[11] The relevant inquiry is not whether (or the degree to which) one party has exercised influence over another,[12]nor the degree to which the parties have mutual confidence in one another, but whether one party is justified in reposing confidence in the other and why.[13]
The fact-specific determination of whether one party justifiably reposes confidence in the other ordinarily presents a jury question.[14] Accordingly, we might assume that with the right set of facts, a homeowner could make a convincing case that he justifiably reposed confidence in the board of directors of his homeowner association, and that the board owed him "the utmost good faith." The benefits of proving such a duty would include, for example, a heightened responsibility for the fiduciary to disclose facts, and a lessened responsibility on the plaintiff-homeowner to investigate facts.[15] However, to date, no set of facts in any reported Georgia appellate decision has definitively established a heightened duty owed by a homeowner association directly to an individual homeowner.
Is a Homeowner in a Confidential Relationship with the Board or its Directors and Officers?
The question thus becomes, for purposes of establishing fiduciary duties, could a homeowner ever be justified in "reposing confidence" in the board of his homeowner association? Two cases brought by individual homeowners in direct actions for breach of fiduciary duty provide some guidance, if not definitive answers, for the unwary litigant.
A 2010 case, Bailey v. Stonecrest Condominium Association, Inc.,[16] primarily concerned discrimination under the Georgia Fair Housing Act (GFHA), but also presented claims for breach of fiduciary duty against the association, its property management company and the board of directors. The plaintiff asserted two bases for these claims. First, the association had passed amendments that restricted leasing, and the restrictions allegedly constituted racial discrimination. The resulting violation of the GFHA was the first basis alleged as a breach of fiduciary duty. The plaintiff also contended that the board breached a fiduciary duty when it allegedly failed to follow proper procedures to notify homeowners of a meeting at which a vote on the amendments would take place.[17]
In addressing these claims, the Court of Appeals of Georgia began by citing the general rule governing all such claims, requiring proof of the three elements of the claim: (1) the existence of a fiduciary duty; (2) breach of that duty; and (3) damage proximately caused by the breach.[18] However, the court's ruling did not turn on whether any of the elements of a breach of fiduciary duty had been proved, but instead on a different standard, routinely cited when owners challenge a homeowner association decision.[19] The standard derives from the Supreme Court of Georgia's opinion in Saunders v. Thorn Woode Partnership, L.P.,[20] and provides as follows:
Where . . . the declaration delegates decision-making authority to a group and that group acts, the only judicial issues are whether the exercise of that authority was procedurally fair and reasonable, and whether the substantive decision was made in good faith, and is reasonable and not arbitrary and capricious.[21]
Unfortunately, the Bailey court did not analyze the plaintiff's fiduciary duty claim against the defendants individually, nor did it analyze the three elements of breach of fiduciary duty...
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