In re Croton River Club, Inc., Debtor v. Half Moon Bay Homeowners Association, Inc.

Croton River Club, Inc. (Croton) (plaintiff) planned to develop Half Moon Bay, which would include condominiums and a marina. However, Croton went bankrupt and homeowners from the Half Moon Bay Homeowners Association, Inc. (defendant) sued Croton for not completing the project. A settlement was eventually reached. As part of the settlement, the homeowners on the association board were to determine an appropriate marina budget allocation to be paid by individuals who had purchased boat slips. The board created a list of expenses and applied a 53 percent multiplier to determine the budget. The list included many expenses that were unrelated to the marina, and the multiplier used was much higher than in previous years. The total amount calculated for the budget was $160,000, which was $140,000 higher than in previous years and would save each homeowner about $2,000 annually. Croton filed a suit against the homeowners to invalidate the marina allocation. The bankruptcy judge determined that the business-judgment rule did not apply and established a new budget allocation using the previous 14.25 percent multiplier. The homeowners appealed on the ground that the business-judgment rule applied and that the bankruptcy judge lacked the authority to determine his own budget. The district court affirmed that the business-judgment rule was inapplicable and avoided the authority argument by holding that the judge had just reinstated the previous multiplier. The homeowners again appealed. The marina was sold during the litigation.