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Articles Posted in Litigation

How to Direct Questions from Potential Homebuyers

Published on: December 7, 2022 | by Vivian Tran, Esq.

Civil-Litigation Since COVID-19, followers of the real estate market may have noticed that the housing market is currently booming. There are not as many sellers as there are buyers, so the competition to obtain a buyer’s dream home is through the roof. Many of these potential buyers are looking to buy their next home within a community association (“HOA”). The competition to buy homes creates an increase in the number of questions from real estate agents and mortgage/escrow companies that are directed toward the association and its agents regarding any litigation involving the association. What should the Board and manager be aware of? What should they do in certain situations?

The HOA has no legal obligation to make disclosure to buyers of properties within the HOA or other third parties. These third parties may be real estate agents, loan processors, escrow companies, or anyone else looking for information regarding the HOA and is not an HOA member.

Even though the HOA has no legal obligation to make disclosures, its management company and even its Board will be asked numerous times by third parties to provide further information regarding any pre-litigation matter or lawsuit the HOA is engaged in. Some typical questions are:

- - Can the HOA or management provide a copy of the complaint?
  - Can the HOA provide certain certifications or expert documentation?
  - How much money is the HOA and/or management being sued for?
  - Would the anticipated or known damages and legal expenses be expected to exceed some percentage of the HOA’s reserve fund?
  - Can the HOA’s attorney provide an opinion that any award granted in the lawsuit will be covered under the HOA’s master insurance policy?
  - When will the matter be resolved and will it be resolved in the HOA’s favor?

Sometimes, these third parties will require that the answer to the above questions come from the HOA’s legal counsel. In any case, neither the HOA’s Board, nor its managing agent, or any of its agents (including legal counsel) should answer any of the above questions. If legal counsel is handling the matter, they should prepare a disclosure letter that the HOA may use to present to any third parties requesting further information. In addition to not answering any of the questions above, the disclosure letter should also not contain any predictions or conclusions. The more vague the better, as the disclosure letter is meant to be an official tool to block further communication from third parties. If applicable, the disclosure letter will provide the appropriate contact information if the HOA’s insurance carrier picked up the case and assigned insurance defense counsel and an adjuster. If the HOA and its managing agent need help navigating this scenario, they should direct all questions to its legal counsel.

If a homeowner wants more information regarding any pre-litigation or lawsuit in order to refinance their home, and the pre-litigation or lawsuit is not resolved, no material or information should be disclosed beyond the fact that things are in progress. The general disclosure letter may be provided to the homeowner. The HOA is not obligated to assist homeowners in refinancing and should not if the information being requested is privileged (confidential).

Any questionnaire sent to the HOA or its managing agent should be forwarded to legal counsel for analyzation. The questionnaire should not be filled out and returned without legal counsel’s input as any disclosures might create unwanted liabilities for the HOA.

While evading questions from homeowners and third parties might seem frustrating, such action is a necessity. Pre-litigation and the proceedings of a lawsuit do not guarantee any outcome. The HOA and its managing agent should know that homeowners and third parties will be very aggressive in trying to obtain further information. However, the best course of action would usually be to: (1) direct the matter to the HOA’s legal counsel; (2) provide the disclosure letter; and (3) indicate, in some fashion, that there is no further information at this time as the matter is ongoing or in the process of being resolved (descriptions will vary depending on each scenario).

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

Navigating DFEH Investigations And Complaints

Published on: September 14, 2022 | by Vivian Tran, Esq.

download Homeowner and tenant complaints filed with California’s Department of Fair Employment and Housing (“DFEH”) are on the rise and are increasingly lodged against Associations, Boards, and management companies. The complaints are generally directly filed with the DFEH on a variety of grounds, but occasionally involve certain fair housing claims that are referred to the department by the U.S. Department of Housing and Urban Development (“HUD”).

The DFEH is responsible for enforcing state fair housing laws that make it illegal to discriminate on the basis of categories like sex, race, color, religion, ancestry, national origin, disability, medical condition, marital status, or sexual orientation. The department’s broad enforcement authority applies to housing providers including common interest developments, landlords, and property management companies.

A typical DFEH complaint process commences with DFEH complaint including service of a short statement of allegations from the homeowner or tenant. This usually signals the beginning of a rigorous inquiry and investigation for the Association, its Board, and the management company, all of whom may be initially identified as actual or potential respondents.

While the DFEH in theory is supposed to be neutral in its investigations, the investigators working for the department often tend to be sympathetic to the complainant(s) by virtue of the tenets of the department and may therefore adopt the role of an advocate when serving severe demands and questionnaires on the respondent(s).

Moreover, it is important to note that the initial complaint filing with the DFEH does not mean that the DFEH has already determined whether there is reasonable cause to believe any laws have been violated or that the DFEH will in fact prosecute a legal action against the named respondent(s). Rather, it means that the DFEH has preliminarily determined that the received complaint, the allegations, and the named parties fall within the investigative purview of the department and are subject to the laws that the DFEH is tasked to enforce.

Nonetheless, because this process tends to be quite involved with numerous nuanced considerations and legal implications for the Association, its Board, management, and the Association’s insurance carrier, Boards should immediately engage the Association’s legal counsel at the very outset to help it navigate the DFEH’s demanding process and help formulate a comprehensive legal strategy.

The above notwithstanding, as an alternative to the department’s active investigation, the DFEH also has a mediation program, whereby it attempts to resolve complaints through free internal dispute resolution services. If the parties mutually agree to mediate, then the complaint response and the active investigation is stayed pending the outcome of the DFEH mediation.

Otherwise, the DFEH investigation continues, and the department will assess the facts and legal issues of the case. These investigations include, among other things, reviewing information and evidence from complainants, respondents, or other sources. When a respondent answers a complaint, the DFEH investigator reviews it with the complainant. Meanwhile, the respondent(s) may contact the assigned investigator to discuss the complaint, request any needed extension of time to respond to the department’s investigative questionnaires, or to address any other concerns.

Thereafter, the DFEH uses the facts obtained through its investigation to determine if there is reasonable cause to believe that a law the department enforces has been violated. If not, the case is closed. If there is reasonable cause, the investigator notifies the parties of this determination, may advise that the department intends to file a lawsuit in court, wherein the department replaces the complainant(s) as the moving party and substitute in as the Plaintiff, and the DFEH’s legal department will then take over the matter for further handling.

However, before the DFEH files a lawsuit, it typically requires the parties to go to mediation. If the case is not settled during this mediation, the DFEH may proceed with filing its lawsuit in court.

Typical settlement remedies at mediation and/or relief sought in DFEH actions include payment of statutory monetary fines and other damages, attorney’s fees and costs, amendment of Association’s CC&Rs and rules, Board and management staff undergoing fair housing training regarding the rights and responsibilities of housing providers, posting of DFEH fair housing posters throughout the community and/or distributing fair housing brochures to all residents, etc.

Based on the above rigorous DFEH process and the range of challenges it presents, it is imperative that the Association’s Board and management stay ahead of the problem by ensuring that their actions and policies are in accordance with the California Unruh Civil Rights Act, the Federal Fair Housing Act, and that they do not inadvertently run contrary to state and federal laws that prohibit discrimination based on the above cited categories.

Moreover, the Association’s legal counsel should be engaged at the very outset of any DFEH complaint process so it may duly protect the Association’s interests and help the Board navigate the above-outlined demanding process.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

Retain Your HOA Counsel Throughout Insurance Claim Matters

Published on: August 3, 2022 | by Vivian Tran, Esq.

unnamed Homeowners Associations (“HOA”) are encouraged to report potential and actual claims to their insurance carriers. In fact, there is usually a provision within the HOA’s Declaration of Covenants, Conditions, and Restrictions (“CC&Rs”) that delineate the circumstances when an HOA’s manager should report a claim. If there isn’t such a provision, HOAs should adopt standard protocols regarding reporting a claim with its insurance carrier in situations where there may be coverage while also immediately taking action to mitigate any damages internally.

In most instances after a claim is reported to the HOA’s insurance carrier, an adjuster would be assigned. If the situation may be resolved with only the insurance adjuster, the HOA’s general counsel, the Board of Directors (“Board”), and HOA’s manager involved, then great. Oftentimes though, the insurance adjuster will assign insurance defense counsel as the claim might be a bit more complicated. In most cases, insurance assigned defense counsel will take over the matter and be the point of contact between the HOA and the insurance adjuster. HOAs will usually opt to not have their general counsel remain on the case as the HOA’s insurance carrier only covers insurance defense counsel’s attorney’s fees not the HOA’s general counsel fees. While that is understandable, we would urge Boards to reconsider taking the HOA’s general counsel completely off an insurance handled matter simply to conserve costs. In the long run, such a decision might end up causing greater liability and headaches for the HOA.

To provide a bit of background, attorneys in California are required to follow what is known as the California Rules of Professional Conduct (“Rules”). As a matter of fact, these Rules are so important that they are tested on the California State Bar and attorneys are required to complete continuing education courses pertaining to ethics every few years. These Rules serve to protect the public, the courts, and the legal profession. Thanks to cinematic arts and social media platforms, attorneys are already viewed as “sharks,” so these Rules promote the administration of justice and confidence in the legal profession. An attorney’s failure to comply with an obligation or prohibition imposed by a rule is a basis for invoking the California State Bar’s disciplinary process. It is important for HOAs and their Boards to know and understand the foundation of a good attorney-client relationship and why an HOA’s general counsel will usually be more invested than an HOA’s insurance defense counsel.

When a Board decides to forego having their general counsel involved in an insurance matter until resolution is achieved, the HOA might be resolving the claim in such a way that is not in the best interests of the HOA. For example, if insurance defense counsel fails to keep communications lines open between insurance defense counsel and the Board as required by Rule 1.4, when it becomes time to settle, the Board does not fully understand what they are agreeing to settle. Most insurance defense counsels work in some capacity for the HOA’s insurance carrier therefore, even though they have an attorney-client relationship with the HOA and should advocate zealously on the HOA’s behalf, the reality is the HOA’s insurance carriers are their bosses. As such, there is a slight conflict of interest. If the HOA’s general counsel is not involved in mediation, settlement negotiations, or preparation of the settlement agreement, the HOA’s Board might end up agreeing to something detrimental to the HOA. At that point, damage control would necessitate a malpractice lawsuit concerning insurance defense counsel and a bad faith insurance lawsuit—neither of which any Board wants a part of.

To avoid such an outcome, HOA Boards should at least retain their general counsel on major decisions throughout the duration of the insurance claim. If the Board does not want HOA general counsel to be directly involved, then the Board should routinely update their general counsel to obtain appropriate advice and risk mitigation strategies.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

Combatting Unlawful Harassment with Restraining Orders

Published on: June 1, 2022 | by Steven J. Tinnelly, Esq.

Man-yelling-at-women-300x200-1 Board Members are tasked with the difficult job of enforcing the Association’s rules and regulations against non-compliant Members. Unfortunately, this often creates tension between Board Members and Members. In some circumstances, this tension turns into unlawful harassment. When this occurs, Board Members should consider the available legal remedies provided under both California law and their homeowners association’s governing documents in order to protect themselves and abate the harassing conduct.

Generally speaking, a restraining order will provide Board Members with the most immediate relief and protection. This is because the California Code of Civil Procedure requires judges to review and rule on requests for Temporary Restraining Orders within the next business day of filing for the same. (Cal. Code Civ. Proc., § 527.6(e).) (Although, Temporary Restraining Orders only remain in effect for a period not to exceed twenty-one [21] days. Before issuing Permanent Restraining Orders, courts must first allow the parties to present their sides of the story at hearings.)

There are two types of restraining orders that Board Members may consider depending on the nature of the alleged harassing conduct. The most common type of restraining order is a Civil Harassment Restraining Order. To prevail and receive a Civil Harassment Restraining Order, the Board Member must prove that the alleged harasser engaged in one of the following forms of unlawful harassment:

unlawful violence (i.e., assault, battery or stalking as defined by the California Penal Code);
a credible threat of violence (i.e., a statement or course of conduct that places a reasonable person in fear for their safety or the safety of their immediate family, and that serves no legitimate purpose); or
a course of conduct directed at the Board Member that seriously alarms, annoys, or harasses the Board Member and causes the Board Member to suffer from substantial emotional distress (and would also cause a reasonable person to suffer substantial emotional distress), and that serves no legitimate purpose.

On the other hand, homeowners associations (as corporations) may consider filing Workplace Violence Restraining Orders against the alleged harasser on behalf of its Board Members. According to the California Code of Civil Procedure, Board Members are considered “employees” of homeowners associations for the limited purpose of Workplace Violence Restraining Orders. (Cal. Code Civ. Proc., §527.8(b)(3).) To prevail and receive a Workplace Violence Restraining Order, the homeowners association must prove that the Board Members (or any other employee as defined by the Code of Civil Procedure) suffered:

unlawful violence (i.e., assault, battery or stalking as defined by the California Penal Code); or
a credible threat of violence (i.e., a statement or course of conduct that places a reasonable person in fear for their safety or the safety of their immediate family), that can reasonably be construed to be carried out or to have been carried out at the workplace, and that serves no legitimate purpose.

If after a hearing on the merits, the Court finds that unlawful harassment has taken place, then the judge may issue a Permanent Civil Harassment Restraining Order for up to five (5) years or a Workplace Violence Restraining Order for up to three (3) years. However, the Code of Civil Procedure only permits Courts to award the prevailing party its attorneys’ fees and costs in lawsuits for Civil Harassment Restraining Orders, not Workplace Violence Restraining Orders.

Finally, in some circumstances, a Member’s harassing conduct toward the Board may constitute a nuisance, as defined by the homeowners association’s CC&Rs. In those situations, the homeowners association may consider bringing an unlimited civil action lawsuit against the offending Member to enforce the homeowners association’s governing documents. Board Members should keep in mind that this type of civil litigation is often more costly and the potential relief is not usually as immediate. Furthermore, the alleged harassment must satisfy the definition of a “nuisance,” as set forth in the governing documents.

If Board Members believe that they are being harassed as a result of their service on the Board of Directors, they should consult with the Association’s general counsel to determine the most effective way to address the problem. Each situation must be evaluated on a case-by-case basis to determine whether the facts meet the legal definition of “unlawful harassment” or a “nuisance.” Of course, Board Members should immediately contact their local law enforcement agencies if they believe that their safety and wellbeing is at risk.

-Blog post authored by TLG Attorney, Sarah A. Kyriakedes, Esq.

Association Management and the Attorney Client Privilege

Published on: February 2, 2022 | by Bradley Walker, Esq.

images Attorneys who practice community association law are often asked whether a community manager is covered by the attorney-client privilege. In general, the attorney-client privilege shields communications intended to be confidential between an association and its attorney. Materials prepared by an attorney and that reflect the attorney’s thoughts, conclusions or opinions (attorney work product) may also be protected against discovery by adverse parties provided that appropriate precautions are taken to ensure that the confidential work product falls squarely within the scope of California’s civil work product privilege.

The Attorney Client Privilege is the right of a client to prevent another from disclosing a confidential communication between the client and their lawyer. (See Evidence Code section 954). A “confidential communication” means information transmitted between a client and their lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted. (See Evidence Code section 952.) California courts have held that “the privilege extends to communications which are intended to be confidential, if they are made to attorneys, family members, business associates, or agents of the party or his attorneys…, when disclosure is reasonably necessary to further the interest of the litigant”. (Zurich v. Superior Court (2007) 155 CA4th 1485, 1495-1496.) “While involvement of an unnecessary third person in attorney-client communications destroys confidentiality, involvement of third persons to whom disclosure is reasonably necessary to further the purpose of the legal consultation preserves confidentiality of communication. (Zurich, supra, at 1496.)

The California Supreme Court has recognized that a corporation such as an Association can only communicate through an officer, employee, or some other person. (Chadbourne v. Superior Court (1964) 60 Cal2nd 723, 732.) “(T)he privilege is not waived simply because the communication is made through an agent of the client or of the attorney.” Chadbourne, supra, at 735. The American Law Institute recognizes the need for corporate employees and agents to have access to confidential materials. The Restatement Third of Law Governing Lawyers provides that when a client is a corporation, the privilege extends to an agent of the organization who reasonably needs to know of the communication in order to act for the organization. (See Restatement Third, Section 73). The corporate agent may be apprised of privileged communications even after they are made such as by examining books and records of the corporation containing privileged communications in order to conduct the affairs of the organization in light of the legal services provided. (See Zurich, supra, at 843.)

In a leading treatise on the subject of the privilege in the context of community associations, the author explains the role of a third-party management company as follows.

Communications between the manager and the attorney, authorized by the association and concerning a privileged issue, are privileged if the parties intended them to be confidential. ***Because management personnel are responsible for the day-to-day operations of the community and implement directives of the board, they are important links between the association and its attorney. As the keeper of an association’s records and files, management has a significant involvement in formulating the association’s legal position in a case, providing both factual information which is necessary for the litigation and advice to the board as to what actions need to be taken to maintain and protect, for example, the association’s finances and the physical plant. By necessity, the attorneys must consult with them, obtain information from them, and relay information to them regarding legal issues. Communications between the association’s attorneys and management regarding litigation and other association legal matters thus are communications between the attorneys and their client, the association.” See Karloff, “The Attorney-Client Privilege and Confidentiality in Community Associations”; CAI College of Community Association Lawyers Law Seminar 2009.

Accordingly, there is little doubt that privileged communication through the third-party management company is both necessary and in furtherance of the interests of the Association in effectively communicating with legal counsel. To ensure applicability of the privilege, association counsel can prepare a general Board Resolution authorizing the management company and its employees to act as agents of the Association where necessary to further communications with legal counsel.

With respect to the so called Attorney Work Product Privilege, Boards and Managers should be aware of the following. This privilege or “Work Product Doctrine” is not an evidentiary privilege but rather a policy codified by statute to preserve the privacy of legal counsel to thoroughly prepare their legal theories and strategies, free from the unnecessary intrusion of their adversaries. (Code of Civil Procedure (“CCP”) section 2018.020.) Materials created or derived from an attorney’s work reflecting the attorney’s evaluation of the law or facts qualifies as work product. (Coito v. Superior Court (2012) 54 CA 4^th 480, 488.) The doctrine applies to tangible things such as written expert reports, diagrams, appraisals, and witness statements. Any report or writing prepared in anticipation of litigation or for purposes of investigating potential claims for the benefit of the Association should be prepared under the supervision of and transmitted in care of legal counsel. In the case of expert review, the decision whether to request a formal written report should not be made until legal counsel and the Board can evaluate the preliminary findings and recommendations of the expert consultant.

It is also important to note that attorney work product is divided into two categories – absolute and qualified work product. CCP section 2018.030(a) provides absolute protection from discovery of any “writing that reflects an attorney’s impressions, conclusions, opinions, or legal research or theories”. CCP section 2018.030(b) provides qualified protection for work product that does not fall under the “absolute” protections of section 2018.030(a). It only protects such work product “unless the court determines that denial of discovery will unfairly prejudice the party seeking discovery in preparing that party’s claims or defense.” For example, a witness statement obtained by an attorney’s investigator where few if any questions were asked would likely reveal nothing of the attorney’s impressions, conclusions or opinions.

The important take away here for Associations and their management representatives is that when confronted with the threat of a lawsuit, or during the investigation of a potential claim against the Association, Boards and managers should think carefully about whether to interview witnesses or retain the services of an expert consultant without the assistance and involvement of legal counsel. A failure to engage counsel early in such process may expose any written report or witness statement to discovery by opposing parties in the event that litigation ensues.

Understanding and protecting confidential communications and work product involving representation by the Association’s legal counsel is an important function of the management company’s agency for the Association and is in furtherance of the management company’s fiduciary duties owed to its association clients.

-Blog post authored by TLG Attorney, Bradley D. Walker, Esq.

Court Confirms, Not Everyone is Entitled to a Protected View

Published on: July 7, 2021 | by Matthew Plaxton, Esq.

*Unpublished Case

In California jurisprudence, it is well established that a homeowner “has no right to an unobstructed view over adjoining property.” (Posey v. Leavitt (1991) 229 Cal. App. 3d 1236, 1250.) Such right may, however, “be created by private parties through the granting of an easement or through the adoption of conditions, covenants and restrictions.” (Id.) And, even then, the right must be expressly stated and narrowly construed.

For example, in the recent unpublished case of Davis v. Irvine Terrace Community Association (2021) 2021 Cal. App. Unpub. LEXIS 53, an owner (“Owner”) sued the association (“Association”) and others alleging a breach of the Association’s Covenants, Conditions and Restrictions (“CC&Rs”). Owner claimed that the Association breached the CC&Rs when it approved a neighbor’s architectural application, which included the construction of a house that would obstruct Owner’s view. While the CC&Rs protect views as to landscape, fences and walls, it contained no similar protection as to houses. Owner nevertheless argued that such protection existed because of the Association’s obligation to enhance and protect “the value, desirability and attractiveness of” Owner’s property. (Id. at p. *16.) The Court rejected Owner’s argument.

In rejecting the Owner’s argument, the Court noted that the CC&Rs included no view protection as to structures such as houses; the Court was unwilling to read into the CC&Rs additional view protections based on the impact architectural modifications would have on the value, desirability and attractiveness of the Owner’s property. Moreover, the Court pointed out that neither the CC&Rs nor the Architectural Guidelines were “intended to protect individual homeowners’ interests. They are intended to protect the community as a whole.” (Id. at p. *14.) Thus, when reviewing an application for an architectural modification, an association need not consider the impact such construction will have on the interests of individual homeowners; rather, the association is only required to consider how such construction will impact the entire community.

Lastly, the Court rejected Owner’s argument that the Association failed to “subjectively consider[] whether [the structures] height and location…will cause disharmony with surrounding structures, including [Owner’s] home[].” (Id. at p. *15.) While reviewing architectural applications will necessarily include a subjective component, there is nothing preventing the Architectural Committee from making a decision based on objective criteria: “The Committee is within its discretion to decide that a proposed plan meets the criteria of “harmony of external design” if it meets certain objective criteria such as height, color, and design scheme when compared to existing structures….” (Id.)

Accordingly, the Architectural Committee was justified in approving the neighbor’s application because it satisfied objective criteria contained in the Association’s Architectural Guidelines.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.

Property Damage Claim and General Liability Coverage/Denial

Published on: March 3, 2021 | by Steven J. Tinnelly, Esq.

denied-stamp When there is a potential for litigation regarding property damage, your association’s legal counsel will sit down with the Board of Directors to analyze whether the alleged property damage resulted from the association’s negligence in any form. If the association is put on notice of a potential negligence claim, it is advisable to immediately report the matter to your Commercial General Liability (“CGL”) insurance carrier.

For example, a popular homeowner concern is a common area roof leak. Upon notice of the alleged leak, it is the association’s duty to follow-up with the homeowner and initiate an investigation within a reasonable timeframe. (Corp. Code §7231(a)). The association has a duty under its governing documents to determine if the homeowner’s allegation of a common area leak is true or not (i.e., hire a leak detection specialist). Upon analyzing the specialist’s report, if it is determined there is a leak within the common area, the association is bound by its governing documents to fix it. (Civil Code §4775.) Note that in the common area roof leak scenario, the association would repair the common area roof, but not any interior or content damage. Therefore, the homeowner may sue under the CGL policy for any interior repairs and content damage on the basis the association failed to maintain the common area roof. The association looks to the CGL policy for the insurance company’s duty to defend and coverage of the loss.

Of course, investigations are time consuming and costly as they often require the contracting of knowledgeable experts. The CGL policy may kick in if there is a clear allegation that the association was negligent in failing to repair and maintain the association’s common areas as required under the governing documents.

However, what if the insurance adjuster denies the claim because it is not covered under the CGL policy or falls under one of the policy’s exclusions? This is where your legal counsel will dispute the adjuster’s argument and advocate why the CGL policy should cover the claim.

There are key provisions within the CGL policy that your attorney will analyze. “Property damage” and “occurrence” are two of the main terms insurance adjusters will often use to either provide or deny coverage under the Commercial General Liability policy.

“Property damage” usually means:

Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use will be deemed to occur at the time of the physical injury that caused it; or
Loss of use of tangible property that is not physically injured. All loss of use will be deemed to occur at the time of the “occurrence” that caused it.

“Occurrence” usually means, “An accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Most CGL policies will cover a potential property damage claim if: (1) the property damage is caused by an occurrence within the covered area; (2) the property damage occurs during the policy period; (3) the association did not have notice of the property damage occurring, in whole or in part; and (4) the claim was reported as soon as possible to the insurance company. Usually, property damage will be deemed to have been known to have occurred at the earliest time when the association received notice of an occurrence or a claim. Therefore, it is extremely important to notify the association’s insurance agent, property manager and your legal counsel as soon as possible if there is a potential for a claim.

The above is but a snippet of a potential issue an HOA might face. For more on arguing bad faith claims, please see our blog post on Insurance Coverage Denied & Bad Faith Claims.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

The Business Judgment Rule: Inapplicable as to Decisions Made Under a Material Conflict of Interest

Published on: January 6, 2021 | by Steven J. Tinnelly, Esq.

*New Case Law

Under the Business Judgment Rule, volunteer directors are shielded from liability for decisions made when those decisions are (1) consistent with the director’s duties, (2) made in good faith, and (3) in a manner it believes to be in the best interests of the HOA and its members. (See Lamden v. La Jolla Shores Clubdominium HOA (1999) 21 Cal.4th 249, 265; see also Dolan-King v. Rancho Santa Fe Assn. (2000) 81 Cal. App. 4th 965, 979.) However, as clarified in the recent case of Coley v. Eskaton, the Business Judgment Rule does not uphold decisions made by directors “acting under a material conflict of interest.” ((2020) 51 Cal.App.5th 943 (“Coley”).)

In Coley, a homeowner Board member (“Owner Member”) brought legal action against the homeowners association (“Association”), two directors (collectively, “Directors”), and the Directors’ employer (Eskaton, Eskaton Village-Grass Valley, and Eskaton Properties, Inc.) (“Employer”) alleging, among other things, that the Directors “ran the [A]ssociation for the benefit of the Eskaton entities rather than the [A]ssociation and its members” in breach of their fiduciary duties. (Id. at p. *1.) In particular, the Directors were paid by Employer and “receive bonuses and incentive compensation in part based on the Eskaton Properties’ performance. Eskaton Properties’ performance, in turn, is based in part on Eskaton Village’s performance.” (Id. at p. *5.) Thus, the Directors were incentivized to ensure that the Eskaton Village performs well despite the impact said performance would have on other communities located within the Association development (i.e., the “Patio” homes).

In support of his allegations, Owner Member provided evidence that Directors improperly “voted to require the Patio homeowners to cover 83 percent of the cost associated with security services,” as well as imposed an assessment on the Patio homeowners to cover litigation expenses. (Id. at p. *7.) The result was a financial benefit to the Eskaton Village (and subsequently, the Directors). Additionally, one of the Directors improperly shared the Association’s attorney-client privileged information with Employer and Employer’s legal counsel. (Id.)

Employer and Directors objected to Owner Member’s argument that the foregoing actions constituted a breach of Director’s fiduciary duties to the Association and its members. In support of their objection, they argued that Owner Member failed to adequately demonstrate that Directors’ conduct “was motivated by specific self-interest,” that Directors “benefited from their breach of fiduciary duty,” and that Directors’ actions “amounted to mismanagement of the [Association].” (Id. at p. *51.) However, the Court of Appeals rejected Employer/Directors arguments concluding that “[o]nce [Owner Member] established the existence of a fiduciary relationship, breach of fiduciary duty, and damages, he was entitled to damages absent some applicable affirmative defense.” (Id. at p. *55.)

The Court noted that Owner Member satisfied this burden: (1) Directors, as members of the Board of Directors for the Association, owed fiduciary duties to the Association and its members; (2) Directors breached those duties by: (a) requiring Patio owners to pay a greater share of the security-services fees and legal fees” in violation of the CC&Rs, and (b) disclosing Association’s attorney-client privileged communications with Employer and Employer’s legal counsel; and (3) Owner Member (and other Patio owners) were injured as a result of the breach. (Id. at pp. **52-55.) And, as noted earlier, the Business Judgment Rule defense did not apply because Directors were acting under a material conflict of interest. As a result, liability was imposed against both Employer and against each Director personally.

This case is important because it highlights the fact that, while the Business Judgment Rule will ordinarily protect individual directors from liability for decisions made, it does not extend to decisions made while acting under a material conflict of interest. Directors therefore should refrain from participating in the decision-making process when a conflict of interest exists in order to avoid personal liability exposure.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.

Lawsuits Against HOAs are Generally a Protected Activity

Published on: December 9, 2020 | by Steven J. Tinnelly, Esq.

*New Case Law

Under California law, a Strategic Lawsuit Against Public Participation (“SLAPP”) is a lawsuit brought against a defendant as a form of punishment for engaging in protected activities. When such lawsuits are filed, the defendant may bring an “anti-SLAPP” motion to strike the plaintiff’s suit. In order to prevail on such a motion, the moving party must demonstrate that the plaintiff’s lawsuit arises from its protected activities. Once the moving party has made such a demonstration, the plaintiff may defeat the motion by showing the lawsuit has merit. Such a battle was recently fought in the case of Third Laguna Hills Mutual v. Joslin. ((2020) 49 Cal. App. 5th 336 (“Third Laguna”).)

In Third Laguna, a homeowners’ association, Third Laguna Hills Mutual – an active adult community (“Association”), brought an action against a homeowner, Jeff Joslin (“Owner”), alleging, among other things, violations of the Association’s governing documents. Joslin had apparently rented out his separate interest to unqualified persons (i.e., “nonseniors”) who then caused nuisance violations (e.g., playing loud music). In response, Joslin filed a cross-complaint against the Association, alleging various tort theories. The Association labeled Joslin’s cross-complaint as a SLAPP suit and filed an anti-SLAPP motion.

In support of its anti-SLAPP motion, the Association argued that Owner’s cross-complaint was in response to the Association’s “protected activities and communications;” in other words, the “pre-litigation threats and the filing of” the Association’s lawsuit. The Association further argued that enforcement of the Association’s CC&Rs “is a public issue and an issue of public interest” falling within the ambit of the anti-SLAPP statute. The Court disagreed, siding with the in pro per Owner.

In denying the Association’s anti-SLAPP motion, the Court reasoned that the tort claims alleged in Owner’s cross-complaint clearly “arose from the [Association’s] decisions and actions” (e.g., preventing Owner from renting out his unit), not “from the [Association’s] filing of the complaint.” Moreover, and although the Association is relatively large, enforcement of the CC&Rs “is not a public issue or an issue of public interest within the meaning of the anti-SLAPP statute.” Because Owner prevailed, he was awarded his costs on appeal.

This case is important because it highlights the need for a HOA to perform a careful and thorough evaluation, not only of the merits of a lawsuit prior to filing, but of all subsequent procedural actions taken during the pendency of the lawsuit.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.

Pickleball Installation

Published on: November 18, 2020 | by Steven J. Tinnelly, Esq.

*Asked & Answered

Asked – Several members of our association have requested that we convert a portion of our common area into a pickleball court. Does your office recommend moving forward with the installation?

Answered – Generally, no. For those who may not know, pickleball is a paddle sport that combines elements of tennis, badminton, and ping pong. Two or four players use solid paddles to hit a wiffleball over a net. It is an activity that can be played amongst all age groups and provides various health benefits and has increased in popularity in recent years. However, with its benefits comes numerous issues.

Considering that pickleball is played with a solid paddle and a wiffleball, it is an extraordinarily loud sport. Moreover, as it grows in popularity, it generally brings large gatherings of people together whose yells and cheers can be heard over great distances. This noise may result in a substantial nuisance to those within earshot and may subject the association to various lawsuits unless the pickleball courts are constructed far out of the earshot of the residences.

Unfortunately, our office has seen many associations attempting to convert croquet lawns, bocce ball courts, etc. into pickleball courts that are centrally located to other amenities provided by the association. These are typically areas which many members regularly visit as a place of quiet enjoyment and relaxation. Unfortunately, this quiet enjoyment could be severely disrupted once the pickleball courts are installed.

Even more concerning is when associations attempt to install the pickleball courts in areas immediately adjacent to residences. The owners of the surrounding homes will be routinely battered with the noise emanating from the pickleball courts. This will no doubt result in substantial frustration to those residents, may have a negative impact on their property value, and will, almost certainly, result in a nuisance lawsuit for the association.

The nuisance created by this loud sport has resulted in various lawsuits and settlement agreements costing associations tens of thousands of dollars and has severely harmed many associations’ financial wellbeing. This, in turn, is then passed back to the membership by way of increased assessments.

As such, if the association decides to move forward with the installation of the pickleball courts , it is not a matter of if, but a question of when a lawsuit may be filed. Thus, unless the association has an area far removed from the residences and other common area amenities, it is likely not worth exposing the association to the increased risk of liability.

If your association has any questions as to whether to install a pickleball court in your association, contact your attorney to provide an in-depth analysis to ensure the association is not needlessly exposing itself to liability.

-Blog post authored by TLG Attorney, Corey L. Todd, Esq.