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Articles Posted in Litigation

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arbitration-judgeIt is well settled that an association’s CC&Rs (“Declaration”) establishes and controls, among other things, a board’s authority to govern an association provided that the CC&Rs do not conflict with California law and regulations (i.e., Davis-Stirling Act). In such cases, the plain language of the CC&Rs control. (Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19 Cal.App.4th 824, 829.)  This was the case in Branches Neighborhood Corporation v. CalAtlantic Group., Inc. G055201 (August 24, 2018), where Branches Neighborhood Corporation’s (“Association”) Declaration required the same to obtain a membership vote of fifty-one percent (51%) or more prior to the initiation of its construction defect claim (“Claim”) against CalAtlantic Group., Inc. (“Developer”).

In Branches, the Association properly followed all procedural requirements under California law in the initiation of the Claim, however, failed to obtain the prerequisite vote in accordance with its Declaration. Approximately two years after the initiation of the Claim, the Association obtained a membership vote in excess of fifty-one percent (51%), approving and ratifying the Claim. Taking into consideration these undisputed facts, the arbitrator assigned to the Claim granted Developer’s motion for summary judgment, holding that the “after the fact expression of consent cannot be transmuted into the prior consent required by the CC&Rs…when such a result would adversely impact the rights of a party to the agreement by which the CC&Rs were created…[t]he Developer is such a party.”

In its opposition to Developer’s motion to confirm the award, the Association based its argument on the theory that the arbitrator exceeded its powers under Code of Civil Procedure (“CCP”) § 1286.2(a)(4), which requires a court to vacate an arbitrator’s award if it determines that the arbitrator has exceeded its powers. Specifically, the Association argued that the arbitrator exceeded its powers by (1) depriving the Association of its unwaivable statutory right to affirmatively ratify the Claim, and (2) overriding public policy in favor of ratification. Both trial and appellate courts (collectively, “Court”) confirmed the arbitrator’s award.

The Court predicated its decision on the established foundation of the “Rule of Finality,” which in short, provides extreme deference to an arbitrator’s decision, subject to limited exceptions such as CCP § 1286.2(a)(4).

In support of its first argument, the Association provided the Court with several sections of the Davis-Stirling Act (“Act”) that provided the Association with the ability to retroactively ratify its actions, claiming that it is its “statutory right.” As such, the Association asserted that the provision in the Declaration that requires membership approval prior to the initiation of the Claim (“Provision”) is unenforceable as it waives said right. The Court quickly disposed of this argument because all the statutes mentioned by the Association provided the right to ratify only if a provision of the Act required an action to be approved by a majority vote. (See Civil Code §§ 4065, 4070.)  Here, the Court found no provision of the Act that required the Association to obtain a majority vote prior to the initiation of the Claim, holding that “absent a specific requirement in the Act to hold an election, the association’s governing documents control.” Branches, at 6.

The Association then went on to argue that public policy supports its position due to the Legislature’s “clear pronouncement of public policy favoring ratification.” Branches, at 8.  The Court disagreed with this proposition, stating that the Act was created to regulate the governance of homeowners associations, placing a system of checks and balances (“System”) against the Association and its board of directors (“Board”). The Court noted Civil Code § 6150 (requiring an association to provide notice to its members 30 days prior to the filing of a claim, unless such requirement would cause the statute of limitations to run) as an example of the System the Act is intended to establish. The Court found the Provision to go a “step further” by requiring the Association to obtain membership approval prior to the initiation of the Claim, as opposed to the mere requirement of providing notice of same. Id.

Retroactively approving the Claim went against public policy as it stripped Association members of their ability to “check” the authority of the Board (i.e., provide authorization to file the Claim); even if the members had the ability to disapprove the Claim, the Association would suffer damages in the form of legal costs and expenses already expended in the Claim, going further against the System, Act, and Declaration. Accordingly, the Court found no violation of public policy and thus, no violation committed by the arbitrator.

Branches emphasizes the importance of the plain language of an association’s Declaration. So long as the Declaration does not conflict with existing law (i.e., Act) and/or goes against public policy, the plain language of the Declaration controls, to which a homeowners association must strictly abide by.

hoa laws It is of crucial importance for a homeowners association to thoroughly interpret, analyze and understand its authority under its governing documents, in particular, its CC&Rs, prior to the taking of any action in order to avoid unnecessary consequences.  For the same reason, it is of equal importance for homeowners associations to obtain general legal counsel that specializes solely in HOA law and related matters to provide unfettered and sound legal advice from an objective perspective.  Law firms that specialize in multiple areas of law (e.g., HOA and construction defect) may overlook certain provisions of an association’s governing documents and inadvertently guide associations in a direction that may prove to be detrimental, such as the outcome in Branches.  For more information and guidance related to the interpretation and/or amending of CC&Rs and other governing documents, please contact us.

-Blog post authored by TLG Attorney, Andrew M. Jun, Esq.

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Court-TrialPreliminary injunctions are temporary court orders requested by one party that prevents another party from pursuing a particular course of conduct until the conclusion of a trial on the merits.  A preliminary injunction is proper where the moving party proves the following two factors: (1) the likelihood that the moving party will ultimately prevail on the merits at the time of trial; and (2) that relative interim harm to the parties from issuance of the injunction weighs in that party’s favor.

Occasionally, HOAs seek preliminary injunctions as a means to enforce the HOA’s governing documents.  Among other reasons, the purpose behind that request for judicial relief is to restrain homeowner actions or omissions when such conduct potentially poses a threat of harm or risk to Association Property or the Association’s Members.  Examples include a homeowner’s unauthorized alteration of structural common area components (e.g. removal of a bearing wall within a condominium unit; unapproved building activities on common area property).

Under the Davis-Stirling Common Interest Development Act (“Act”), at the conclusion of a trial on the merits, the prevailing party shall be awarded reasonable attorney’s fees and costs in an action to enforce the HOA’s governing documents (Civil Code Section 5975).  Historically, there has been some question as to whether a moving party may recover statutory attorney’s fees and costs if the court grants a preliminary injunction in a HOA enforcement action.  In January 2018, the California Court of Appeal addressed that issue in the case of Artus v. Gramercy Towers Condominium Association (19 Cal.App.5th 923).

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*New Case Lawhoa-records-inspection

As part of the ongoing management of a homeowners association (“HOA”), the HOA is obligated to prepare and maintain certain “association records,” most of which must be made available for inspection by the HOA’s members. However, the right to inspect and copy certain association records is not absolute, as some records may be withheld from a member for confidentiality concerns, as well as in situations where the member requesting the records is doing so for an “improper purpose”:

“association records, and any information from them, may not be sold, used for a commercial purpose, or used for any other purpose not reasonably related to a member’s interest as a member.” (Civ. Code § 5230; see also Corp. Code §§ 8330, 8333.)

This “proper purpose” requirement was recently the focus of a challenge brought by a member of a HOA who sought to inspect and copy the HOA’s membership list. In Tract No. 7260 Association, Inc. v. Parker (2017) 2017 Cal. App. LEXIS 265 (“Parker“), the Court of Appeal concluded that the HOA was justified in withholding the membership list despite the member’s offering of a facially valid reason for his request to inspect the membership list. The member was involved in a corporation that the HOA was suing, called “Fix the City.” The member claimed that he sought the membership list “for possible communication with the [HOA’s] members to ascertain whether there had been corporate misdeeds.”

The HOA denied the request, arguing that the member was seeking inspection of the membership list in order to give Fix the City an unfair advantage in the lawsuit between it and the HOA. The trial court considered the facts at issue, and concluded that the member’s request was indeed improper, stating that “a reasonable conclusion is that [the member] is using his membership status to aid Fix the City in defending the [HOA/Fix the City] lawsuit.”

This aspect of the trial court’s ruling was affirmed on appeal. The Court in Parker noted that, while the HOA has the burden of demonstrating that the member will use the record for an improper purpose, and that mere speculation of an improper purpose is insufficient to justify withholding records, the HOA provided sufficient evidence that the requesting member did indeed seek the information for an improper purpose—namely, to aid Fix the City’s defense in the lawsuit brought against it by the HOA.

California HOA lawyers The Parker case underscores the importance of evaluating a member’s request for association records to determine whether the requested record(s) will be used for an improper purpose (i.e., to advance the member’s interests at the expense of the HOA’s). If the purpose is improper, and that conclusion is supported by more than simple conjecture, the HOA may lawfully deny the request. HOA Boards and managing agents that are concerned about the underlying motivations of a member’s request for association records should consult with the HOA’s legal counsel as to what records may (and indeed should) be withheld in order to protect the HOA.

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

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*New Case Lawhoa-boundary-dispute

Rural, equestrian, and large-scale planned developments may include properties with spacious lot sizes bordered by common area lots and open spaces. When property lines are not clearly delineated or easily identified in these communities, there may be instances where a homeowner seeks to expand his property by constructing yard improvements that extend beyond his property line and encroach onto adjacent, HOA-owned common area. If this is not discovered and addressed by the HOA in a timely fashion, there are avenues under California law through which the homeowner may assert that he has obtained an easement over (and in extreme circumstances, actual ownership of) the encroached area. The thought of a homeowner annexing common area for his/her own use is a scary thought, as is the prospect of the HOA failing to prevail in costly litigation that may be needed to reclaim its common area.

Fortunately, the recent holding in Nellie Gail Ranch Owners Association v. McMullin (2016) 4 Cal.App.5th 982 (“McMullin”) helps strengthen a HOA’s ability to defeat a homeowner’s attempt to encroach onto common area and claim it as his own…
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*New Case Lawhoa-attorney-fees-governing-docs

Civil Code Section 5975(c) serves a vital function for any HOA’s enforcement efforts. Should a HOA be required to file a lawsuit to enforce its governing documents, Section 5975(c) entitles the HOA to recover from the defendant homeowner the HOA’s attorney’s fees, provided that the HOA is the “prevailing party” in the lawsuit. This right for a prevailing party to recover its attorney’s fees in an action to enforce a HOA’s governing documents is also commonly found in the provisions of a HOA’s CC&Rs.

But what is the technical definition of “prevailing party?” The Davis-Stirling Act does not define the term “prevailing party,” nor does it provide any metric for making that determination. As a result, California courts have concluded that the test for determining the prevailing party is a pragmatic one—namely, whether a party can be deemed the prevailing party requires a determination that the party “prevailed on a practical level by achieving its main litigation objective.” This test may be relatively easy to apply in some situations, and not so easy in others. For example, assume that a HOA’s lawsuit seeks to recover a substantial sum in fines for an owner’s violation of the rules, but the HOA is only awarded roughly 10% of that amount. Can the HOA be said to have achieved its main litigation objective, despite the fact that the ruling was arguably more favorable to the owner than it was to the HOA?

This hypothetical was actually litigated in the recent case of Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761 (“Almanor”).  In Almanor, the defendant homeowners (the Carsons) were sued by the HOA to enforce provisions of the HOA’s CC&Rs relating to short-term rentals. The Carsons disputed the applicability of those provisions to them, as well as the HOA’s attempt to enforce other rules relating to trash storage, common area use, and boat decals, and to ultimately fine the Carsons for their violations of those rules. The trial court ruled that the HOA could enforce its rules and awarded attorney’s fees to the HOA in an amount of roughly $100,000, in addition to $6,620 in fines (approximately 10% of the amount originally imposed by the HOA and sought by it in the lawsuit). The Carsons appealed and lost. The HOA was deemed the prevailing party despite its inability to recover roughly 90% of the unpaid fines it originally pursued in the lawsuit.  The Court in Almanor concluded that the key issue in the lawsuit was the HOA’s authority to enforce the rules and to impose fines for violations, not the amount of the fines themselves. Because the trial court found that some of the fines were enforceable, the Court of Appeal held that the HOA “met its objective” in the lawsuit and was appropriately deemed the prevailing party:

“The fractional damages award does not negate the broader practical effect of the court’s ruling, which on the one hand narrowed the universe of restrictions that [the HOA] could impose on the properties, but on the other hand cemented [the HOA’s] authority to promulgate and enforce rules pursuant to the CC&Rs…Taken together and viewed in relation to the parties’ objectives…we conclude that these outcomes were adequate to support the trial court’s ruling [that the HOA was the prevailing party].” (Almanor, at 775.)

California HOA lawyers This holding provides valuable guidance on the issue of attorney’s fee awards in the context of HOA enforcement actions. Lawsuits to enforce a HOA’s governing documents often involve multiple claims or causes of action that asserted against a problematic homeowner. Even where a trial court is reluctant to grant every remedy sought by the HOA, if the practical effect of the lawsuit is consistent with the HOA’s principal objective (i.e., to make the homeowner comply with the governing documents), the HOA should still be deemed the prevailing party entitled to recover its attorney’s fees and costs incurred in connection with its lawsuit.

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*New Case Lawhoa-mediation

The Davis-Stirling Act promotes the nonjudicial resolution of disputes between homeowners associations (“HOAs”) and their members in various respects. One example is found contained in Civil Code Sections 5930 et. seq.  which, in sum, require that the disputing parties to endeavor to resolve the dispute through Alternative Dispute Resolution (“ADR”) before a lawsuit is filed. ADR is essentially a form of mediation that uses a neutral third-party mediator (often a retired judge) to assist the parties in securing a mutually acceptable resolution.

Experienced HOA Board members, management professionals, and attorneys understand that ADR is often successful in resolving a dispute before it escalates to costly and protracted litigation. That resolution is typically memorialized in a written settlement agreement negotiated during ADR and executed by the parties. The settlement agreement often governs what actions must be taken by the parties within specified time frames. For example, in an architectural dispute, the settlement agreement may require the homeowner to take corrective measures (i.e., to modify or remove unapproved architectural improvements) within a specified time frame.

However, in some instances, a party to the settlement agreement may subsequently fail to honor its terms. The other party is then placed in a position of having to take legal action to enforce the other party’s compliance with the settlement agreement. The enforcing party may then have concerns regarding its ability to recover its attorney’s fees in taking such action. While the Davis-Stirling Act allows for a prevailing party in an action to enforce a HOA’s governing documents to recover its attorney’s fees, it is unclear whether enforcement of a settlement agreement reached at ADR constitutes such an enforcement action.

Fortunately, the recent case of Rancho Mirage Country Club HOA v. Hazelbaker (2016) 2 Cal. App. 5th 252 (“Hazelbaker”) addressed this exact issue… Continue reading

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*New Case Lawhoa-attorneys-fees.jpg

Litigation can be a time consuming and costly endeavor. These two factors typically weigh heavily against filing a lawsuit, especially where there is no ability for the party prevailing in the lawsuit to recover its attorney’s fees and costs. By default, the “American Rule” with respect to attorney’s fees awards states that each party must pay for its own attorney’s fees and costs unless otherwise provided by statute or contract. (Code Civ. Pro. § 1021.) Fortunately, in the context of homeowners associations (“HOAs”), Civil Code Section 5975(c) allows for a prevailing party in an action to enforce HOA governing documents to recover its reasonable attorney’s fees and costs. Section 5975 is a component of the Davis-Stirling Common Interest Development Act (“Act”)–the principal body of Civil Code sections governing California HOAs and common interest developments (“CIDs”).

In the recent case of Tract 19051 Homeowners Association v. Kemp (2015) 2015 Cal.LEXIS 1216 (“Kemp“), the California Supreme Court addressed the question of whether Section 5975(c) allows for a prevailing party to recover its attorney’s fees and costs in a lawsuit brought under the Act even where the HOA in the lawsuit is not a CID and thus technically not subject to the Act…

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HOA-water-intrusion-patio.jpgMost every set of Homeowners Association (“HOA”) CC&Rs contain a provision prohibiting conduct which constitutes a “nuisance.” That conduct often includes “noxious, illegal or offensive activities,” anything which “unreasonably interferes with a resident’s right to quiet enjoyment” and/or “endangers their health or annoys or disturbs” them. We have blogged about how such nuisance provisions may be employed to resolve issues such as the conduct of tenants, activities in the common area, and second-hand smoke transmission. However, a recent unpublished ruling of a California appeals court indicates how nuisance provisions may also extend to situations involving improvements constructed or maintained by a homeowner.

In PGA West Residential Association, Inc. et al., v. Mork (2014) Cal. Ct. App. No. E054276 (“PGA West“), the Defendant homeowners (the Morks) and the Plaintiff homeowners (the Wyatts) owned adjacent, freestanding condominium units within the PGA West Residential Association (“Association”). In 2008, the Wyatts discovered the presence of mold and moisture damage within the interior of their unit. The Wyatts concluded that the water had entered into their unit through an exterior common area wall (“Common Wall”) separating their unit and the Morks’ patio (“Patio”). The Wyatts then sued both the Morks and the Association for violating the restrictive covenants set forth in the Association’s CC&Rs. The Association also sued the Morks for breach of the CC&Rs, breach of contract, and negligence–alleging that the Morks had altered the drainage in the Patio and, as a result, caused water to flow under the Common Wall and into the Wyatts’ unit.

At trial, both the Wyatts and the Association presented evidence that the Morks had altered the original grade of the Patio in the Morks’ course of constructing a swimming pool, sprinkler system and other improvements in the Patio area. The Morks’ conduct resulted in surface water which drained away from the Morks’ unit ultimately collecting into a 2′ wide planter (“Planter”) that extended the length of the Common Wall. In their defense, the Morks argued, among other things, that they were not responsible under the CC&Rs for maintaining the Patio or the Planter–that those areas were designated as “Limited Common Areas” under the CC&Rs to be maintained by the Association…

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HOA-IDR-Lawyers.jpg*New Legislation

Provisions of the Davis-Stirling Common Interest Development Act (Civ. Code §§ 4000 – 6150) currently require homeowners associations (“HOAs”) to “provide a fair, reasonable, and expeditious procedure for resolving a dispute” between a HOA and its members. Civ. Code §§ 5900, 5905. This procedure is commonly referred to as “Meet and Confer” or “Internal Dispute Resolution” (“IDR”). Its purpose is to provide a non-adversarial forum where a HOA member and a HOA Director can meet informally to see if a resolution to the dispute can be secured short of involving attorneys and taking legal action.

However, the passage of AB 1738 (Chau) will upset this non-adversarial and informal structure through providing a member with the right to have the member’s attorney present at the IDR meeting. While this may not seem problematic, HOAs and industry professionals that are familiar with the IDR process understand that AB 1738 will undoubtedly result in HOAs incurring greater attorney’s fees to resolve member disputes. CAI’s California Legislative Action Committee’s (CAI-CLAC) “Call to Action” on AB 1738 illustrated its inherent problems:

“AB 1738 encourages members to bring attorneys and others to their first meeting with a single board member who has volunteered to help work out the member’s problem or concern. These simple ‘meet-and-confer’ conversations over coffee most often resolve an issue. When they occasionally don’t, either party may pursue a more formal Alternative Dispute Resolution (ADR) process that does involve lawyers. Nothing in law prevents lawyers from attending IDR right now, but AB 1738 actually promotes having them present to argue the issue(s). This will invariably make the discussion adversarial…

…If a member brings an attorney [to IDR], the HOA will very likely bring an attorney. At $300 per hour, each IDR will cost HOAs a minimum of $900 when one considers the lawyer’s time preparing, attending and any follow-up actions. [AB 1378] will end up increasing assessments.”

These sentiments were echoed by the Educational Community for Homeowners (ECHO) in its opposition to AB 1738: “By default, associations will bring their attorneys to IDR. In order to protect themselves, owners will also bring their attorneys. This increases the expenses for both parties, and encourages an adversarial atmosphere.”

IDR is not mediation, but an informal meeting between the member and at least one (1) HOA Director. As such, the communications during the IDR meeting are generally not subject to the confidentiality requirements that cover the more formal “Alternative Dispute Resolution” (“ADR”) process. AB 1738 could allow for the communications and documents discussed at IDR to be admissible in future litigation, and thus serve as a significant problem for the HOA. This is one reason why our office, along with the majority of HOA attorneys, are advising our HOA clients engaged in IDR with a member to close and reschedule the IDR meeting if the member unexpectedly brings their attorney to the IDR meeting. If the member is represented by an attorney, the HOA should ensure that it is as well. Rescheduling the IDR meeting so that the HOA’s attorney can also be present is vital to protecting the HOA’s interests.

Despite overwhelming HOA industry opposition to AB 1738, it was signed into law by Governor Brown on September 18, 2014, and will take effect January 1, 2015. To read the text of AB 1738 and how it will amend the current provisions of Civil Code Sections 5910 and 5915, click here.

hoa laws

AB 1738 represents a tremendous setback for HOAs and their members in their efforts to resolve disputes in a quick and cost-effective manner. Where those efforts fail, the parties are free under current law to move to ADR (a form of mediation) in order to involve attorneys and see if a resolution can be secured short of litigation. As a result of AB 1738, HOA Boards of Directors and management professionals must be cognizant of the problems that could arise if a member’s attorney attends the IDR meeting without the HOA’s attorney also being present. HOAs seeking specific guidance and recommendations on this issue should consult their legal counsel.

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*New Case Lawhoa-construction-defect-meeting.jpg

Civil Code Section 6150 requires that a homeowners association (“HOA”) make various disclosures to its membership in the context of construction defect litigation. The HOA is further required to hold a meeting of its membership to “discuss problems that may lead to the filing” of a construction defect action, as well as the options available to the members to address those problems.

Such a meeting will likely involve communications between the HOA’s construction defect attorney and individual members of the HOA whom are not the attorney’s direct clients. Therefore, the extent to which those communications are protected by the attorney-client privilege may be uncertain. Fortunately, the recent case of Seahaus La Jolla Owners Association v. La Jolla View LTD addressed this issue and clarified the privileged nature of communications between a HOA’s attorneys and its membership in the context of construction defect litigation…

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