While this case involved a roof, it could easily be a deck over a living space…read on, I wrote in DECK in exchange for Roof…

Business Judgment Rule is not Defense in Breach of Contract Claim

Anderson v. Nottingham Village Homeowner’s Association, Inc., 37 A.D. 3d 1195, 830 N.Y.S.2d 882 (2007)

Powers of the Association: The business judgment rule neither constitutes a defense to a breach of contract claim nor protects an association from liability where an association is contractually obligated to maintain property, even though individual unit owners are responsible for interior damage.

Mary Ann Anderson and her mother owned a townhouse in a cooperative managed by Nottingham Village Homeowners’ Association (“association”). A leak in the DECK roof above the Andersons’ townhouse caused mold growth in the interior of their townhouse, which caused damage to the property and health problems for the Andersons. Mary Anderson sued the association for its failure to repair the unit’s DECK properly. The association’s Maintenance Responsibility Policy placed responsibility for DECK maintenance on the association but also provided that individual unit owners would be responsible for interior water damage.

After Mary Anderson asked the court to add her mother as an additional plaintiff and seek damages for property damage and health problems arising from mold growth in the apartment, the association moved for summary judgment, arguing that the business judgment rule insulated the association from liability for failure to repair the DECK properly. The trial court denied Anderson’s motion and granted the association’s cross motion. Anderson appealed.

The business judgment rule bars judicial review of the reasonableness of decisions made by the managing board of condominiums or co-ops if the board acts within its authority, its action has a legitimate relationship with the purposes of the association, and there is no showing of bad faith, self-dealing, fraud, or other misconduct. However, as in this case, where the issue was breach of contract, the court determined that the business judgment rule did not apply and did not protect the association from liability for its alleged breach of contract.

The court affirmed that Anderson had contractually assumed responsibility for interior water damage resulting from a leaky DECK but concluded that the trial court abused its discretion in denying Anderson’s motion and her mother as an additional plaintiff. Stating that leave to amend a pleading should be freely granted if the amendment was not lacking in merit and there was no prejudice to the nonmoving party, the court ruled that the proposed amended complaint sufficiently alleged the breach of a duty of reasonable care independent of the association’s contractual duties and resulting non-economic damages to set forth a separate tort claim.

However, the court denied Anderson’s motion to recover punitive damages because the association’s conduct did not rise to the level of a high degree of moral culpability manifesting a conscious disregard of others’ rights or constituting willful or wanton negligence or recklessness.