This case stems from a 2014 lawsuit in the Superior Court of the State of Washington for the County of Snohomisi. A homeowner, Matt Surowiecki Sr, sued the community association, Hat Island Community Association, in which he owns 270+ lots, both individually as a lot owner and derivatively on behalf of the association, arguing that the community association was in violation of their governing documents for failing to levy assessments on an equitable basis and a number of other claims, which were largely dismissed via summary judgment. The trial court eventually dismissed Surowiecki's claim and cited the business judgment rule for their reasoning. Surowiecki then appealed the decision to the Washington Court of Appeals, Division One who reversed the trial court decision “that the business judgment rule limits only personal liability of individuals" and that the trial court applied judgment for a board absent evidence of fraud, dishonesty, or incompetence (ie. Failure to exercise proper care, skill and diligence).
Now, both Hat Island Community Association and Surowiecki are seeking review of the Court of Appeals opinion. HICA sought review arguing that trial court properly applied the law in Washington, giving deference to a board's discretionary decision absent evidence of fraud, dishonesty, or incompetence (ie. Failure to exercise proper care, skill and diligence.) Surowiecki sought review arguing that the court of appeals inappropriately limited the issues on remand to a review of board's decision for its “reasonableness" and “whether a homeowner association's decision to adopt any particular assessment structure is reasonable depends not on the substance of the decision but rather on the “process employed and the facts considered." The Washington Supreme Court granted review of the business judgment rule issue and the assessment claim.
The Court of Appeals holding that the business judgment rule applies only to limit the liability of individual directors calls that fundamental rule into question and creates significant liability for all Washington community associations. It could set bad precedent on a national level regardless of the state law being applied. The two principal issues addressed in the brief are whether the business judgment rule applies to the association (and not just the board members) and whether the business judgment rule requires that the boards' decisions be “reasonable."
Court: Washington State Supreme Court
Topic: Business Judgment Rule
Brief Author: Anthony Rafel, Esq., CCAL and Terry Leahy, Esq., CCAL
Filed: April 12, 2021
CAI Amicus Review Panel: Mr. Robert Diamond, Esq. (VA), Mr. Stephen Marcus Esq. (MA), Mr. Ed Allcock, Esq., CCAL (MA), Mr. Steven Sugarman, Esq., CCAL (PA), Mr. Anthony Rafel, Esq. CCAL (WA), Mr. Elia Ellis, Esq., and Mr. Russell Robbins, Esq. (FL)