Litigation

CA Supreme Court Expands Scope of Attorney’s Fees Awards Under Civ. Code Section 5975(c)

Published on: March 25, 2015 | by Steven J. Tinnelly, Esq.

*New Case Law

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…

Owner Held Liable for Property Damage on ‘Nuisance’ Grounds

Published on: November 20, 2014 | by Steven J. Tinnelly, Esq.

Most 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 However, a recent unpublished ruling of a California appeals court indicates how nuisance provisions may also extend to situations involving improvements constructed or maintained by a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…

AB 1738 Signed: HOAs Set to Incur Greater Attorney’s Fees to Resolve Member Disputes via IDR

Published on: October 14, 2014 | by Steven J. Tinnelly, Esq.

*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.

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.

Clarifying Attorney-Client Privilege in HOA Construction Defect Litigation

Published on: April 23, 2014 | by Steven J. Tinnelly, Esq.

*New Case Law

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…

HOA Has Standing to Sue Developer Over Parking Rights of HOA’s Members

Published on: April 1, 2014 | by Steven J. Tinnelly, Esq.

*New Case Law

It is not uncommon for a homeowners association (“HOA”) to enter into contractual arrangements with a third party where the rights and responsibilities under that arrangement are between the third party and each of the HOA’s members. Under such circumstances, the HOA’s involvement may be limited solely to collecting fees from the members and passing them on to the third party. Because the HOA (as an entity) is not the beneficiary of the contract, there is uncertainty as to whether the HOA has standing to assert claims against the third party on behalf of the HOA’s members. California Civil Code Section 5980 provides a HOA with standing to initiate legal action “in its own name as the real party in interest and without joining with it the [HOA’s] members” in matters relating to enforcement of the HOA’s governing documents, as well as matters involving or arising out of damage to the common area and/or to a separate interest which the HOA is obligated to maintain or repair. However, there is no statutory provision clearly addressing whether a HOA has such standing in matters pertaining to the rights of the HOA’s members in contracts with third parties.

Fortunately, the recent case of Market Lofts Community Association v. 9th Street Market Lofts, LLC (2014) 222 Cal. App. 4th 924 (“Market Lofts”) provides some guidance on this issue.

Court Upholds HOA Enforcement of ‘Maid Unit’ Rent Restriction

Published on: February 24, 2014 | by Steven J. Tinnelly, Esq.

The ability of California homeowners associations (“HOAs”) to adopt and enforce restrictions on the renting of units has been limited by changes in the law over the past couple of years. Those changes have purported to provide greater protections for homeowners seeking to rent out their units to third parties. HOAs have therefore been required to modify their approach to the enforcement of rent restrictions that may be contained in their governing documents, including the adoption of additional rent restrictions binding only on future homeowners.

However, a recent unpublished Appellate Court decision confirms the ability of a HOA to enforce rent restrictions adopted decades in the past that are intended to address the unique concerns and characteristics of the HOA’s development.

HOA Legislative & Case Law Update (2014) Now Available!

Published on: January 16, 2014 | by Steven J. Tinnelly, Esq.

hoa update 2014 Our “Annual Legislative & Case Law Update” newsletter for the year 2014 is now available in our library!

The Legislative & Case Law Update provides an overview of the new legislation and case law impacting California Homeowners Associations (“HOAs”) as we head into 2014. The new legislation includes, among other items, the re-organization of the Davis-Stirling Act (now in effect), and a bill that clarifies contractor licensing requirements for HOA managers. The new case law includes rulings that may impact HOA election rules, membership rights to attend Board meetings, use of HOA media outlets during election campaigns, insurance defense coverage, attorney’s fees recovery in HOA disputes, and assessment collection procedures.

Click here to read our Annual Legislative & Case Law Update (2014)

Have questions on any of the new legislation or case law? Click here to send us a question online.

No Duty of HOA Insurance Carrier to Defend Non-Monetary Claims

Published on: January 2, 2014 | by Steven J. Tinnelly, Esq.

*New Case Law

In a recent blog post we addressed the importance of involving the HOA’s legal counsel in the decision as to whether a lawsuit brought against the HOA should be tendered to one or more of the HOA’s insurance carriers. The recent case of San Miguel Community Association v. State Farm General Ins. Co. (October 1, 2013) (Cal.App.4th, No. G047738) (“San Miguel”) touched on this issue. Although the ruling in San Miguel focused primarily upon the scope of an insurer’s obligation to defend a HOA under the HOA’s insurance policy, the ruling underscores the importance of reviewing, understanding, and if necessary, seeking professional guidance regarding the scope of insurance coverage afforded to a HOA under its insurance policies.

In San Miguel, two homeowners sought to force the HOA to take action to curb ongoing parking violations within the community. After the HOA refused to take action, the homeowners demanded the HOA’s participation in mediation, thereby prompting the HOA to tender the matter to its insurance carrier, State Farm. In responding to the HOA, State Farm noted that the claims brought by the homeowners did not seek the recovery of monetary damages, and were therefore insufficient to trigger State Farm’s obligation to defend the HOA or to reimburse the HOA for its defense costs…

Tendering Lawsuits Brought Against the HOA

Published on: November 14, 2013 | by Steven J. Tinnelly, Esq.

hoa insurance *New Library Article

There are instances where a disgruntled homeowner may file a lawsuit against his or her homeowners association (“HOA”). The lawsuit may be based on a variety of claims (i.e., claims involving property damage or alleged malfeasance on the part of the HOA’s Board of Directors). This is one of the reasons why HOAs are legally required to purchase and maintain certain insurance policies designed to protect the HOA and its membership from a variety of risks.

However, problems may arise in response to the actions taken by the HOA and its management once the lawsuit has been served. Those problems generally result from the way in which the lawsuit may have been “tendered” (sent to) to one or more of the HOA’s insurance carriers, including whether it was even appropriate to tender the lawsuit in the first place. This blog post addresses some of those problems and provides guidance to HOA Boards and their management with regard to this issue…

Our attorneys have also published this information in an article that is available for download from our Web site’s library.

Who is Entitled to Attend Board Meetings on an Owner’s Behalf?

Published on: September 3, 2013 | by Steven J. Tinnelly, Esq.

*New Case Law hoa meeting

Membership rights with regard to the attendance and participation in Board meetings is an important component of the laws governing homeowners associations (“HOAs”). Civil Code Section 1363.05, known as the “Common Interest Development Open Meeting Act,” states that “any member of the [HOA] may attend meetings of the board of directions…” This right is central to keeping HOA members apprised of the issues affecting their community and the ways in which the Board is discharging its duties under the HOA’s governing documents.

However, one issue that surfaces from time to time deals with the extent to which a HOA is required to allow a member to attend a Board meeting with her attorney, or to allow the member’s attorney or agent to attend the Board meeting on the member’s behalf. This issue may be complicated further if the owner of a property (the “member” under the HOA’s governing documents) is an entity (i.e., a business organization or family trust).

Fortunately, the recent case of SB Liberty, LLC v. Isla Verde Association, Inc. (“SB Liberty”), will help resolve this issue and will provide valuable guidance for HOAs moving forward…