Palm Springs Villas II Homeowners Ass'n, Inc. v. Parth
Palm Springs, Riverside · CA · California Court of Appeal, Fourth District, Division One
MIXED · other
What happened
Association president/director Erna Parth allegedly hired roofers later paid more than $1.19 million without bids/license checks, signed asset-secured loans and a five-year landscaping contract without required member votes, replaced the manager, and secretly renewed a security contract. The trial court granted her summary judgment on business-judgment and CC&R exculpation grounds. On June 21, 2016, the Court of Appeal reversed summary judgment on fiduciary duty (affirming demurrer dismissal of a duplicative governing-documents count).
What the court (or agency) held
The business judgment rule and a CC&R exculpatory clause do not entitle a director to summary judgment when triable facts show she failed to make reasonable inquiry. Corporations Code section 7231 requires good faith, the best interests of the corporation, and the care—including reasonable inquiry—of an ordinarily prudent person. Evidence that the president hired roofers without bids or license checks, signed asset-secured loans and a five-year landscaping contract without the member votes the governing documents required, and withheld contract facts from the board raised triable issues. Remand for trial; not a merits judgment against the director.
Why this matters for members
This result is MIXED — a partial win, not a clean sweep on every claim. Belief in one's own authority is not diligence. Directors who skip bids, license checks, member votes, and board disclosure create triable fiduciary-duty issues that business-judgment and exculpation clauses cannot erase on summary judgment.
What the member did
The association, on behalf of the membership, cross-complained for breach of fiduciary duty and developed deposition and expert evidence of missing bids, missing member votes, and undisclosed contracts.
What did not work
The standalone governing-documents cause of action added nothing to fiduciary duty and stayed dismissed. The opinion is a remand for trial, not a merits judgment against the director.
Questions for the board
- Are contracts over one year and loans secured by association assets put to a member vote when required?
- How are major vendor selections bid, licensed, and reported to the full board?
- Do monthly packets include vendor invoices for large projects?
Questions for a lawyer
- What evidence package raises triable issues on reasonable inquiry under § 7231?
- How do CC&R exculpation clauses interact with statutory director duties?
- Is a separate governing-documents count worth pleading if it duplicates fiduciary duty?
Citation
Palm Springs Villas II Homeowners Ass'n, Inc. v. Parth, 248 Cal. App. 4th 268; 204 Cal. Rptr. 3d 850; D068731 (2016) (2016-06-21). California Court of Appeal, Fourth District, Division One. Outcome chip: MIXED. Flags: MIXED, remand. Source: https://www.courts.ca.gov/opinions/archive/D068731.PDF
_General information, not legal advice. Outcomes turn on facts and current law._
General information, not legal advice. Outcomes turn on facts and current law.