HOA boards cannot escape wrongful acts by their managers

Given the fact that the HOA manager and/or firm acts “in place” or “on behalf of” the board under a contractual relationship that explicitly identifies the manager as an “agent” or “management agent,” the HOA can be held liable for the acts of its manager. (See study of Arizona management contracts).

Under tort law (the common law of wrongful acts) of vicarious liability (the tort doctrine that imposes responsibility upon one person for the failure of another) and respondeat superior, the board cannot ignore, walk away or refuse to take corrective action action against the manager without incurring liabilities.

First, from the HOA’s obligations, under the officers and directors duties to act in good faith and as a prudent man, the board is obligated to act against its manager where state laws and the governing documents have been violated, or when the manager is clearly committing wrongful acts, like making false statements, harassing a homeowner, etc.

Second, let’s look at what the Restatement (3rd) of Agency (2006) has to say about the liabilities of the agent and principal (manager – board). (Of course, one would not expect to see this material covered in any government sponsored seminar, or manager licensing education, like at the Leadership Centre in Phoenix, which is supported by the towns of Chandler, Mesa, Gilbert, Queen Creek, Apache Junction). “Direct liability” refers to suing the party as such. The main points are summarized below:

¶ 7.03 (1) A principal is subject to direct liability to a third party harmed by an agent’s conduct when . . .

¶ 7.05 (2) When a principal has a special relationship with another person [as the board with a homeowner], the principal owes that person a duty of reasonable care with regard to risks arising out of the relationship, including the risk that agents of the principal will harm the person with whom the principal has such a special relationship.

¶ 7.06 A principal required by contract or otherwise by law to protect another cannot avoid liability by delegating performance of the duty, whether or not the delegate is an agent.