The Court of Appeal (First District, Division 2), in the case of Eng v. Opperman (2025) 117 Cal.App.5th 354, has upheld the broad protection of good faith decisions made by community associations through their volunteer directors based on the business judgment rule and the California Supreme Court decision in Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249.
Generally, the case involved the denial of an architectural application for an accessory dwelling unit (“ADU”) and a new garage. The applicants (the Oppermans) were members of the Portola Valley Ranch Association. They alleged that the Association's board of directors (“Board”) violated State law and “intentionally ignored” procedural and substantive provisions of the HOA's governing documents in denying their application.
The Association moved for summary judgment, based in part on the HOA Board President's declaration. The motion argued that the Board had the authority to review the Oppermans' application and was protected from liability by the business judgment rule. The trial court granted the HOA's motion, and the Oppermans appealed.
The Oppermans contended that the CC&Rs authorized the Board to act in lieu of a design committee only if no design committee existed. A design committee did exist, but it had deferred to the Board on the application. The Oppermans argued that the Board could only appoint a new committee or allow the application to be approved by operation of law. The court of appeal found this to be an unreasonable interpretation of the CC&Rs that would leave the HOA paralyzed to act on any application. Instead, it found the CC&Rs empowered the Board to review and overrule the design committee.
The Oppermans also argued that the HOA was not protected by Lamden's judicial deference rule, claiming that it applies only to board maintenance decisions. The court of appeal disagreed, citing prior cases applying the rule to an HOA board's maintenance and repair decisions, selection of the appropriate means to remedy CC&R violations, designation of storage space in a common area, adoption of short-term rental rules, and approval or rejection of homeowner improvement plans. It concluded that Lamden's judicial deference standard is broadly read and has been expanded to apply to any good faith board decision made to further the purpose of the development that is consistent with the governing documents and public policy.
The appellate court observed that the business judgment rule on which Lamden was modeled sets up a presumption that directors' decisions are made in good faith and are based on sound business judgment. That presumption can be rebutted only by facts which, if proven, would establish fraud, bad faith, overreaching, or an unreasonable failure to investigate material facts. The Court of Appeal agreed with the trial court's observation that the undisputed evidence failed to establish anything other than a disagreement between the parties that did not rise to the level of bad faith. Instead, the record indicated that the HOA acted in good faith, since before denying the application, it asked the Oppermans to split the application (they twice refused); and second, despite being in the middle of the lawsuit, the Association approved the Opperman's later ADU application.
Take-Home Lesson:
Lamden's rule of judicial deference is not limited to maintenance decisions. Like the analogous business judgment rule, it applies to any good-faith board decision made to further a development's purpose, consistent with the governing documents and public policy. As the court of appeal in Eng v. Opperman noted, “common interest developments are best operated by the board of directors, not the courts.”
