Background on case.
The HOA, Jade Winds, had filed bankruptcy and the management firm, First Residential Services of FL, filed a proof of claim (informing the court that it is owed money) with the bankruptcy court for some $156,796.21.
The issue at heart is the HOA’s counterclaim against the management firm, alleging numerous violations of its contract with First Services. First Services defended by turning to the hold-harmless clause (also known as an exculpatory clause) in its contract with the HOA.
[FirstService] shall not be liable to the Association … for any injury, loss or damage to person or property unless caused solely by [FirstService’s] own gross negligence or willful misconduct or arising solely out of a material breach of this Contract.[i]
(Check your governing documents and guess what, you’ll find a hold-harmless for the BOD).
Court decision.
The Court held that “Public policy disfavors exculpatory contracts.” But, as expected, there are some “outs:”
“Nevertheless, exculpatory clauses generally are enforceable if drafted unambiguously. Exculpatory clauses are unambiguous and enforceable where the intention to be relieved from liability was made clear and unequivocal and the wording was so clear and understandable that an ordinary and knowledgeable person will know what he or she is contracting away.
Please read the above very carefully. Its wording similar to the requirement to validly waive or surrender your constitutional rights, which we know is ignored by the courts in HOA matters.
The court put forth the long held doctrine that “If this provision exculpated the Defendant simply because the damage or loss involved acts or omissions by others, it would render illusory significant portions of the Contract.” In other words, you can’t touch me no matter what I do. Now the presumption is that, in all fairness, nobody is that dumb and foolish to agree to such a clause. (The bankruptcy court rejected FirstService’s motion to dismiss).
For your consideration.
Now understand that the same legal reasoning that views vague hold harmless clauses as against public policy can be applied to the vague CC&Rs amendment process. The content of the amendment process is so imprecise that the members can be asked to approve changes that have a far-fetched relationship to the purpose and intents of the CC&Rs.
In these instances, the homeowner has no or very little reasonal expectations that the BOD would seek certain amendments, like using assessments to pay for a little league baseball team, or to support a golf club not owned by the HOA and not part of the HOA’s common ground, or to spend $2.1 million on a “modern” looking administration building.
The CC&Rs are silent on the review of the content of the amendment and, consequently, the courts have no justification to raise content issues. The courts just check if the voting process was “legit” and the requisite number of votes for approval was attained. Given the fact of substantial members who are authoritarian followers, all BOD actions and procedures and amendments are more often than not approved.
The boilerplate amendment process needs to be modified to require amendments to be justified by the BOD as meeting its good faith and prudent man – would a person or the BOD spend its own money—obligations to the members.
References
[i] Trade Winds v. FirstService Residential FL, CASE NO. 15-17570-BKC-RAM (Bankr. S.D.FL March 22, 2019).
HOA Constitutional Government 