#40-09, Henry v. Bel Pre Recreational Association #40-09 (July 2, 2010) (Panel: Burgess, Dubin, Farrar).

The Henrys complained that their neighbors were in violation of an HOA rule limiting shrubbery along property lines to 42 inches and that the HOA board had a fiduciary duty to enforce that rule.  They also complained that the board's failure to enforce the rule was arbitrary and unreasonable.  Finally, they asked that the hearing panel hold the HOA in default because it filed its answer late.  The panel held a hearing on the Henrys' motion for a default and the HOA's motion to dismiss the complaint for lack of jurisdiction.

The hearing panel refused to enter a default against the HOA simply because it filed its answer late.  Under Maryland law, default judgments are not to be used as punishment for purely procedural violations.  In this case, the HOA had asked for permission to file late, and it did file its answer only a few days late; moreover, it had reasonable defenses to raise against the complaint.  Nor did the Henrys show any harm to themselves as a result of the late filing of the answer.

The hearing panel upheld the board's action on the neighbor's shrubbery.  The evidence showed that the board did respond to the Henrys' complaint by asking the neighbor to voluntarily to prune the shrubs, but the neighbor flatly refused to do so for privacy reasons.  The board voted not to take further action in this case.  The panel applied the "business judgment rule", which is discussed at great length in CCOC #39-09, Prue v. Manor Spring HOA (March 16, 2010).  Under the business judgment rule, as defined by Maryland's courts, the decision of an HOA's board of directors not to enforce a rule must be upheld so long as the board acts in good faith and not in an arbitrary manner.  In this case, the Henrys did not show that the board acted inconsistently by enforcing the rule in some cases but not in others.  On the contrary, their evidence showed that the board was consistent in not enforcing the rule at all.

After this decision was issued the Henrys filed a motion for reconsideration.  The panel denied the motion.  The panel noted that the record as submitted by the Henrys did not show inconsistent enforcement of the shrubbery rule but rather the failure or refusal to enforce the rule.  Under the existing version of Chapter 10B, the Commission does not have jurisdiction over a board's refusal or failure to take action against a member, but only over the board's decision to take action against the member.  In this case the dispute was over the board's decision not to take any action, and the Commission does not have jurisdiction over such a dispute.*

*[Staff note: Amendments to Chapter 10B took effect July 12, 2010, and expanded the Commission's jurisdiction; however, the amendments do not affect cases filed under the former law.]