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origin*Unpublished Case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For example, in the recent unpublished case of Davis v. Irvine Terrace Community Association (2021) 2021 Cal.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.)

California HOA lawyers 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.

denied-stampWhen 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:

  1. 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
  2. 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.

California HOA lawyers 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.

conflict-of-interest-25e7ab7068414ab080d7563821681049*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.

California HOA lawyers 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.

4e035fcb658a82042cd48a551b4f1b6b*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.

California HOA lawyers 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.

*Asked & Answered

court-diagram-photoAsked – 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.

California HOA lawyers 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.

090518115715*New Case Law

In the case of Aldea Dos Vientos v. CalAtlantic Group, Inc., the Second District Court of Appeals overruled the Fourth District’s previous holding in Branches Neighborhood Corp. v. CalAtlantic Group, Inc.  The Branches case found that homeowners associations forfeit their rights to pursue construction defect claims unless their members first vote to approve such legal action in accordance with their CC&Rs.  The Branches decision was overturned upon the finding that developers cannot use the CC&Rs to veto claims made against them.  The Court of Appeals held that such use of the CC&Rs not only violated public policy, but also Senate Bill No. 326, as codified by California Civil Code, section 5986(b).

 

Factual Summary

A condominium project in Thousand Oaks, Aldea Dos Vientos (“Association”), brought suit against CalAtlantic Group, Inc., the successor to the developer of the Project (“Developer”). The trial court stayed the lawsuit on the parties’ agreement to participate in mediation and then arbitration.  When mediation was unsuccessful, the Association subsequently filed a demand for arbitration.  After the demand was filed, the Developer cited to the Association’s CC&Rs at Section 7.01B to raise a defense.  Section 7.01B required the Association to first obtain a membership vote in excess of fifty-one percent (51%) prior to commencing arbitration. The Association admitted it had not obtained the required vote.

In response, the arbitrator stayed the arbitration to allow the Association to petition the trial court to review this issue of arbitrability.  In the meantime, the Association obtained membership approval to continue with arbitration from over ninety-nine percent (99%) of its members.  The trial court denied the Association’s motion on the grounds that arbitrability was a matter for the arbitrator to decide.  The Developer then filed a motion to dismiss with the arbitrator for the Association’s failure to comply with the CC&Rs at Section 7.01B.  The arbitrator summarily dismissed the original demand for arbitration, and the trial court concluded that the arbitration constituted a final determination of the rights of the parties, so judgment was entered in favor of the Developer and against the Association.

 

Public Policy

In the Aldea Dos Vientos case, the Second District Court of Appeals vacated the lower court’s decision on the basis that the arbitrators exceeded their powers by issuing an award that contravenes an explicit legislative expression of public policy. More specifically, the Court of Appeals found that Section 7.01B of the CC&Rs violates public policy because it gives the Developer the unilateral power to bar an action against itself even though the Legislature clearly intended for housing to be free of substantial construction defects.

Furthermore, the Court of Appeals held that Section 7.01B of the CC&Rs, and any similar provision, is not just unreasonable but unconscionable.  The Court stated, “[i]t gives the Developer veto power over the Association’s claims in spite of the members’ vote to proceed with the arbitration.”  In sum, such a provision amounts to a trap for the unwary set by the Developer to bar claims against it.  For these very reasons, the Second District Court of Appeals declined to follow its sister court’s ruling in Branches.

 

Senate Bill 326

The Court of Appeals also acknowledged that the Legislature has already found provisions, like Section 7.01B, to be unconscionable.  Senate Bill 326 was enacted on August 30, 2019 and took effect on January 1, 2020.  The bill added Civil Code, section 5986, subdivision (b) to the Davis-Stirling Act, which prohibits an association’s CC&Rs from limiting a Board’s authority to initiate legal proceedings against its Developer.   The Civil Code applies retroactively to any CC&Rs with such limiting language.

The Second District Court of Appeals reversed the judgment in Aldea Dos Vientos on the additional grounds that the arbitrator’s decision to dismiss the original demand for arbitration was not on the merits, nor was the trial court’s judgment final.  Furthermore, the arbitrator’s decision expressly stated that it did not directly impact the Association’s second demand for arbitration.  Therefore, the Court of Appeals held that the arbitrator’s decision could not have resulted in a final judgment against the Association in the Aldea Dos Vientos case.

California HOA lawyers The Aldea Dos Vientos ruling is beneficial for homeowners associations across the state because it preserves their rights to bring construction defect lawsuits against developers regardless of language in the CC&Rs requiring prior membership approval.  In any event, homeowners associations should always seek legal advice from attorneys that specialize in HOA law before commencing construction defect lawsuits to ensure their compliance with both state law and their governing documents.

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

plumbing-890x600*New Case Law

One of the primary purposes for which a homeowners’ association (“HOA”) is formed is to maintain and repair the HOA’s common areas, as well as any other areas designated within the HOA’s recorded Declaration of Covenants, Conditions and Restrictions (“CC&Rs”) (i.e., HOA Maintenance Areas). Faithfully executing the maintenance obligations under the CC&Rs is important to preserve property values and generally enhance the quality of life of all residents residing in the community. Failure to do so may expose the Association to liability.

For example, in the recent case of Sands v. Walnut Gardens Condominium Association, the California Appellate Court held the HOA could be responsible for damages sustained by a homeowner as a result of a plumbing leak originating from a pipe on the roof of the condominium building (i.e., HOA common area). ((2019) 35 Cal. App. 5th 174, 176.) In Sands, the HOA repaired the pipe and the roof, but did not compensate the homeowners for the damages they sustained to the interior of the unit and their personal property. The homeowners sued the HOA for breach of contract and negligence.

In addressing the former first (i.e., the breach of contract claim), the Court of Appeal noted that the HOA had a contractual obligation under the CC&Rs to maintain the common area in “a first-class condition.” (Id.) A jury could find that the HOA breached that contract by failing to perform preventative maintenance, and by failing to periodically inspect the pipes and roof. The Court dismissed the HOA’s argument “no evidence showed [that] the [HOA] was ‘on notice that it needed to make repairs or do something to the roof or the pipes.’” (Id.) Rather, it was sufficient that the HOA knew that no maintenance was being performed, which a jury could find as a breach of the CC&Rs’ requirement that the common area be maintained in a first-class condition.

However, as to the second cause of action for negligence, the Court sustained the trial court’s judgment of nonsuit (i.e., the homeowners failed to present sufficient evidence to conclude that the HOA was negligent). The Court noted that “the [HOA] had no independent duty as to the pipes and roof arising from tort law.” (Id. at p. 177.) In other words, absent a showing of a duty independent of the CC&Rs, an HOA cannot be held liable for the tort of negligence.

This case is important for several reasons. First, while the Rule of Judicial Deference generally requires courts to defer to maintenance decisions made by HOA boards even if a reasonable person would have acted differently in the same situation, the rule does not protect HOAs when they fail to perform any preventative maintenance and/or periodic inspections. Thus, a HOA should not wait until it receives maintenance requests and/or notice from homeowners concerning the need for common area repairs; rather, the Board should consult with experts and establish a preventative maintenance program addressing all common areas.

Second, there is no separate tort claim (e.g., negligence claim) for a HOA’s failure to maintain the common area. This is not to say, however, that a HOA will not be liable under a negligence theory for other reasons. For example, if a HOA voluntarily assumes a duty to protect residents from criminal activities and breaches that duty, the HOA may be held liable for negligence. (See Frances T. v. Village Green Owners Association (1986) 42 Cal. 3d 490.) The language contained in Frances T. also seems to suggest that a HOA may be found negligent for failing to maintain the common area which results in personal injuries. (Id. at p. 499.)

California HOA lawyers The case of Sands v. Walnut Gardens highlights the importance of properly executing maintenance obligations under the CC&Rs. While the Board is granted judicial deference in determining how the common areas are to be maintained, a HOA may be held liable for its failure to investigate maintenance problems and to take reasonable action. (See Affan v. Portofino Cove Homeowners Association (2010) 189 Cal. App. 4th 930 [the deference afforded to HOA Boards may not extend to situations where the Board fails to act or to investigate the scope of required maintenance or repairs].) HOA Boards should therefore consult with experts to establish and execute an appropriate common area maintenance plan.

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

Fotolia_65601566_S*Unpublished Opinion

We recently blogged about the importance of the the plain language of an association’s Declaration when following pre-litigation requirements to a construction defect claim.  On March 18, 2019, the California Court of Appeal ruled that trial courts should not deny a homeowner of his right to submit a case to arbitration pursuant to the CC&Rs when there is a disagreement about whether the homeowner complied with the pre-litigation requirements.  Instead, the dispute should be submitted to an arbitrator to make the final decision on whether the conditions precedent to arbitration have been satisfied. (See Baldwin v. Woodside 05s, LP, Case No. E06827 (Cal. Ct. App. March 18, 2019).)

In the case of Baldwin v. Woodside 05s, LP, several homeowners filed a lawsuit against a developer on construction defect claims.  According to the development’s CC&Rs, homeowners were required to satisfy certain pre-litigation conditions before they were permitted to initiate lawsuits against the developers.  For example, before filing a lawsuit, the CC&Rs stated that:

  • homeowners were required to give notice of the dispute to the developer;
  • homeowners were required to give the developer an opportunity to inspect and take corrective action;
  • the parties were permitted to agree to voluntarily mediation;
  • the parties were permitted to submit the dispute to binding arbitration; and
  • if mediation and arbitration failed, the parties were required to submit the dispute to a judicial reference.

In the Baldwin case, the homeowners did not satisfy the pre-litigation requirements.  The homeowners filed a lawsuit against the developer, without providing notice or an opportunity to inspect, and then tried to compel arbitration and judicial reference through motions to the court.  In response, the trial court denied both of the homeowners’ motions, and the homeowners appealed.

The Court of Appeal held that the homeowners were not permitted to appeal the trial court’s ruling in relation to their request for a judicial reference because the Code of Civil Procedure, section 906 only permits appellate courts to review verdicts that involve the merits of the case or that substantially affects the rights of a party.  The Court of Appeal found that the decision to grant or deny a judicial reference does not involve the merits of a case.  Therefore, the homeowners had no right to appeal and lost their opportunity to submit the matter to a judicial reference.

However, the Court of Appeal found that the trial court erred when it denied the homeowners’ motion to compel arbitration.  The Court of Appeal held that while trial courts should determine whether parties agreed to be bound by an arbitration clause in the first place (i.e., the question of arbitrability), only arbitrators should rule on procedural questions, like whether a condition precedent to arbitration has been fulfilled.

Since there was no question that the Baldwin parties agreed to be bound by the arbitration provision in the CC&Rs, and the underlying construction defect claims fell within the scope of the arbitration provision, the trial court was required to grant the homeowners’ motion to compel arbitration.  Although the trial court should have left the question of whether the homeowners satisfied the conditions precedent to arbitration to the arbitrators.

California HOA lawyers This case serves as a reminder that the California Supreme Court has a long-standing policy of upholding arbitration agreements. If the CC&Rs contain an arbitration provision, a homeowners association should have its legal counsel carefully review the related contractual requirements before commencing litigation in order to save significant legal fees and costs.

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

anti-SLAPP*Unpublished Opinion

The recent unpublished opinion of Chemers v. Quail Hill Community Association et al. (2018) shines some light on the oft-misunderstood California Anti-SLAPP statute and its effectiveness as a defense for actions by a homeowners association’s board of directors.  The Fourth District California Court of Appeal held that certain actions by the board in a dispute with a director were not in furtherance of the right of free speech or petition as to be protected by the anti-SLAPP statute.

Plaintiff Evan Chemers (“Chemers”) was a member of the board of directors for defendant Quail Hill Community Association (“Quail Hill”), a planned unit development located in Irvine, California.  A series of disagreements and escalating tension between Chemers and other members of the board resulted in the board taking affirmative steps to remove Chemers from the board permanently.  In June 2016, the board proposed a resolution to create an executive committee consisting of all board members except for Chemers, and in July 2016, the board proposed a resolution to declare Chemers’ board seat vacant on the ground that he did not meet the member-residency requirement.  Chemers was not afforded an opportunity to present any evidence of residency, address the board, or have his legal counsel present when he was formally removed.

In October 2016, Chemers filed a lawsuit against the association and other directors, alleging eight causes of action including breach of governing documents, breach of fiduciary duty, negligence, declaratory relief, and various violations of the Civil Code and Corporations Code.  In response, the defendants filed an anti-SLAPP motion seeking an order striking the complaint and the eight causes of action within it.  The trial court granted the moving defendants’ anti-SLAPP motion as to six of the eight causes of action.

Chemers subsequently appealed the trial court’s decision, and the Court of Appeal concluded that the trial court erred by granting the anti-SLAPP motion as to the claims alleged against Quail Hill for breach of contract, violation of Civil Code section 5850 et seq., and for two counts of declaratory relief.  The Court of Appeal reasoned that none of those four causes of action arose out of protected activity – whether speech or petitioning activity – within the meaning of the anti-SLAPP statute.

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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. (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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