42 Ocean Pines PROGRESS November 2022
OPINION
COMMENTARY
Time to pay the piper for ‘bad faith’ Bad faith refers to dishonesty or fraud in a transaction. Depending on the exact setting, bad faith may mean a dishonest belief or purpose, untrustworthy performance of duties, neglect of fair dealing standards, or a fraudulent intent. It is often related to a breach of the obligation inherent in all contracts to deal with the other parties in good faith and with fair dealing. ~ Legal Information Institute, Cornell University
L
et’s not sugarcoat it: The five individual defendants in the Janasek litigation got their collective butts kicked in the recent decision granting former director Tom Janasek a temporary injunction against enforcement of a suspension of rights to access OPA bar and restaurant amenities. It was hardly surprising, this outcome. Only the hopelessly myopic or delusional, or those infected with the disease of confirmation bias, predicted a different result, one favoring the OPA. By now, OPA members understandably might be tired of the whole case. After all, Janasek regained access rights to the amenities through a temporary restraining order obtained shortly he filed suit against the OPA. Nothing really changes with the granting of the temporary injunction: He still has the right to use the amenities just like any other OPA member in good standing. This case really isn’t as much about Janasek at this stage in the legal saga as it is a sad commentary on the performance of their duties by certain current and former members of the Board of Directors. Judge Beau Oglesby dispassionately but with precision rendered his verdict on that job performance, and in the manner in which the Janasek matter was handled, his verdict was harsh: Bad Faith. This is the second judge in the space of a year who has applied the term “bad faith” to describe certain actions by certain directors, two of whom are current members of the Board. They were also members when they and the OPA lost the Rick Farr case, complicit in actions that resulted in Farr’s temporary disqualification as a Board candidate. These two directors, former OPA President Colette Horn and former Vice President Frank Daly, owe the OPA membership an apology for dragging the community through this unnecessary and costly litigation. That applies also to the Farr litigation. Resignation should be considered, as should action to remove them as directors. The judge identified one specific example of bad faith: After the much publicized verbal altercation involving Janasek and then sitting director Josette Wheatley, she asked for advice from her
Rick Menard colleagues about how to proceed. They advised her to file a police report. Only after Janasek was identified as the one who had verbally accosted her did a Board majority decide it needed to get involved. The judge also demolished a key argument made by the defendants: That they had the right to suspend Janasek because of broad language in the OPA charter giving the Board authority to act to promote the general welfare of the association. According to the judge, they don’t have that authority when specific language in the governing documents limit the occasions in which a suspension of amenity privileges is permitted, non-payment of assessments and declared violations of the OPA’s restrictive covenants. Should a future Board be tempted to overreach its authority by citing a “general welfare” provision in the governing documents, this part of the judge’s decision should serve as a wake-up call: Don’t. While the entire decision is a point-by-point refutation of the OPA’s arguments, another one stands out. The OPA had argued that Janasek’s presence at three amenities constituted a public safety risk. The judge effectively blew a hole in that argument by noting that Janasek was not banned at other public amenities. Some safety risk, according to the judge. It should be noted that the temperate and rational judgments of directors Doug Parks and Rick Farr, then in the Board minority, had their
views on the Janasek suspension vindicated by the judge’s decision. The next phase in this litigation presumably will involve settlement discussions, a process that will not bode well for the defendants because all of their arguments were demolished by the Court, including the business judgment rule which normally insulates HOA directors from litigation. The exception to that general rule is Bad Faith, and the judge, as noted, rendered his judgment on that. In settlement talks, Janasek holds all the cards, and the five defendants should expect to pay the piper for their various errors of judgment and misdeeds in settlement discussions. Among the options Janasek should consider pursuing: reimbursement of legal fees, with contributions from the individual defendants. As the insurance company may not be inclined to cover settlement costs related to legal fees -- the fine print of the OPA’s liability coverages needs to be examined here -- the question becomes: Why should OPA members foot the bill resulting from overreach and poor choices of certain directors? Janasek might also ask for a statement of apology from the defendants and even resignation by the two sitting directors who acted in bad faith as determined by the Court. And then the current Board majority could consider appointing him to the Board to fill one of the vacancies. Too much to ask? Probably, but as an opening gambit, justified. Let the negotiations begin. -- Tom Stauss
