The California Court of Appeal’s decision in Ridley v. Rancho Palma Grande HOA (2025) 114 Cal.App.5th 788, serves as a blunt reminder that HOA boards are fiduciaries. The business judgment rule will not shield inaction, delay, or bad faith.

The Case in Brief

Homeowners Doug Ridley and Sherry Shen rented out their condo for retirement income. In April 2018, tenants reported flooding in the crawlspace—a common area under HOA control. Over the next seven months, multiple experts concluded the source was likely an abandoned farm well. Rather than taking remedial action, the HOA stalled.

For 19 months, the HOA ignored repeated expert warnings, choosing to seek new, more favorable opinions without disclosing key facts. All the while, water damage and toxic mold continued to spread in the unit. When a sinkhole appeared in the crawlspace and the City red-tagged the property, the HOA still avoided confirming the well’s existence, opting instead for superficial fixes.

Workers hired to repair the sinkhole finally uncovered the wellhead in January 2020.

The Court Battle

Six years after the initial water intrusions, the trial court found the HOA engaged in “an extreme departure” from the standard of care (i.e., gross negligence).

The HOA appealed, arguing that the business judgment rule shielded it from liability. The appellate court concluded the business judgment rule did not apply because the HOA acted in bad faith, including by:

  • Ignoring expert opinions;
  • Concealing material facts from subsequent experts;
  • Misleading HOA members, city officials, and the courts; and
  • Disregarding the health and safety of others.

The consequences to the HOA were severe. The court awarded the Homeowners damages for restoration costs, emotional distress, and lost rent and utilities of $4,115 per month until the required work was completed. The court also awarded punitive damages of $250,000 against the HOA in addition to $25,000 in punitive damages against the HOA President individually.

The message is clear: Courts will not defer to HOA boards, or individual board members, that act with indifference or engage in deception.

Takeaways for HOA Boards

This case underscores that HOAs are not mere administrative bodies, they are fiduciaries entrusted with protecting property value and homeowner wellbeing. When credible experts identify a problem, delaying necessary repairs only serves to increase risk.

Best practices for HOAs include:

  • Act promptly on common-area issues;
  • Rely on qualified experts, and listen to them;
  • Disclose material facts to consultants;
  • Communicate honestly with members;
  • Prioritize the health safety of the community;
  • Consult an attorney for guidance.

Failing to do act promptly invites liability and reputational harm.

Takeaways For Homeowners

If your HOA delays repairs or you suspect it is acting in bad faith:

  • Document everything;
  • Track damage and communications;
  • Consult an attorney to assess your rights.

Courts will enforce CC&R obligations and hold HOAs accountable when they act in bad faith.

In Conclusion

Whether you are serving on a HOA board or living under one, Ridley is a reminder that HOAs must act with diligence and honesty, that and homeowners have recourse when they do not.

By: Scot Gauffeny, Esq.