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CCOC Decision Summary

#05-11, Voorhees v. Decoverly I HOA (November 25, 2011) (Panel: Fleischer, Farrar, Whelan)

The homeowner disputed a decision of his HOA to spend $1000 to enter upon a piece of land that bordered the HOA and clean it up.  The homeowner argued that the board had no right to do so because the HOA did not own the land.  The homeowner requested that the HOA penalize the board members who voted for the expenditure.

The facts at the hearing showed that the homeowner, who was a member of the board of directors, objected to a proposal to spend money to clean the lot on the grounds that the HOA did not own the land.  He recommended that the HOA have a survey performed to determine ownership.  The board outvoted him and went ahead with the cleanup.  Subsequently the board conceded the HOA did not own the lot.

The HOA argued that the Commission had no jurisdiction over the dispute because the directors were immune from personal liability.  The panel held that a homeowner has the right under State and County law to sue his association for misuse of funds, even if the directors are immune from personal liability.   

The panel then held that the board's authority to spend association funds was limited by the governing documents to the maintenance of the common areas.  Nothing in the governing documents gave the board the authority to spend funds on property it did not own.  Therefore the board acted beyond its legal authority.

The hearing panel held that the board's decision to clean up the lot was not protected by the "business judgment rule" because that rule "applies only when the governing body is acting within the scope of its discretion, not when it lacks authority to act."  In addition, Maryland courts have held that the business judgment rule does not apply when a board negligently fails to act, and in this case the board, faced with dispute over whether it owned the property involved, negligently failed to take action to investigate the matter and decide if it did own the land or not.

The hearing panel therefore held that the HOA must refund $1000 to its members.

The hearing panel also held that it had no authority under Chapter 10B to penalize the individual members of the board for their error.  It could only take action against the association as a party.

Finally, the hearing panel noted that the HOA's insurance carrier, several months before the hearing, to settle the case by refunding $1000 to the HOA.  The homeowner rejected this offer. The panel concluded that the homeowner's conduct in rejecting this offer was made in bad faith out of a desire to personally embarrass the board members and was not made in the best interests of the HOA.  Therefore the hearing panel denied his request for a refund of his filing fee.

 
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