[Maintenance; Board Deference] The deference afforded to HOA Boards for maintenance decisions does not extend to the Board’s interpretation as to the scope of the HOA’s maintenance responsibilities under its CC&Rs.
Feldsott & Lee, Martin L. Lee and Erika M. Hsu for Plaintiff and Appellant.
Michael Maguire & Associates, Paul Kevin Wood and Brian Y. Fujita for Defendants and Respondents
OPINION
RYLAARSDAM, Acting P. J.-
Patrick Jennison had a leaky sewer pipe two feet beneath the concrete slab underlying his Newport Beach condo. The homeowner association said he was responsible for the repair bill on the theory that the sewer pipe was “exclusive use common area” for which he was responsible. On cross-motions for summary judgment, the trial court disagreed, and entered a judgment declaring that the association should bear the expense of the repair cost. The court later awarded Jennison about $17,000 in attorney fees and court costs. The association has appealed from the ensuing judgment.
We affirm. Under a natural reading of the CC&R’s, the sewer pipe was a genuine common area to be maintained and repaired by the association, as distinct from “an exclusive use common area appurtenant” to an individual owner’s separate interest.
FACTS
A. Brief Overview
The Dover Village Association (Association) is a 38-unit condominium complex in Newport Beach. For some time before the summer of 2007, a deteriorated four-inch cast iron sewage pipe beneath Patrick Jennison’s condo had been venting sewage. Finally, in late July 2007 the leak seeped up into [126] the floors and carpet of Jennison’s unit and the unit of another. Jennison’s tenant reported the leak to the Association’s president, who called property management, who then sent a plumber to make repairs.
The repairs were extensive, costing about $15,000. It was necessary to cut through Jennison’s floor, jack hammer the concrete slab underneath, and trench out and replace the 50 feet or so of sewer pipe that connected Jennison’s condo with the main service line. A dispute soon arose as to who was responsible. In October the Association sent Jennison a letter asserting that because the sewer pipe exclusively serviced Jennison’s condo, it was his responsibility “to maintain and repair” the sewer pipe. The letter directed Jennison to pay the $15,000 plus repair cost. Jennison did not send a check. The Association filed this action.
The parties agreed to have the issue decided on cross-motions for summary judgment. The trial court ruled that, as a matter of law under both the Davis-Stirling Common Interest Development Act (the Davis-Stirling Act), codified as sections 1350 et seq. of the Civil Code, and the CC&R’s, the sewer pipe is common area to be maintained and repaired by the Association. (All statutory references will be to the Civil Code.
B. Governing Texts
This case involves the interaction between the two sets of texts. First, the Davis-Stirling Act set forth in sections 1350 et seq. of the Civil Code provides general rules for the governance of condominium associations. Second, there are the particular rules set forth the Association’s own CC&R’s. We examine each in turn
1. The Act
[1]The way the Davis-Stirling Act is structured, a homeowner’s association is normally responsible for repairs to “common areas,” but the individual unit owner is responsible for repairs to “any exclusive use common area appurtenant to the separate interest.” Section 1364, subdivision (a) provides both the general rule and the exception for exclusive use common areas: “(a) Unless otherwise provided in the declaration of a common interest development, the association is responsible for repairing, replacing, or maintaining the common areas, other than exclusive use common areas, and the [127] owner of each separate interest is responsible for maintaining that separate interest and any exclusive use common area appurtenant to the separate interest.”
The definitions section of the Davis-Stirling Act is set out in section 1351. Subdivision (i) defines “exclusive use common area.” The definition is: “‘Exclusive use common area’ means a portion of the common areas designated by the declaration for the exclusive use of one or more, but fewer than all, of the owners of the separate interests and which is or will be appurtenant to the separate interest or interests. (1)Unless the declaration otherwise provides, any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patio, exterior doors, doorframes, and hardware incident thereto, screens and windows or other fixtures designed to serve a single separate interest, but located outside the boundaries of the separate interest, are exclusive use common areas allocated exclusively to that separate interest.” (Italics added.)
2. The CC&R’s
There is no question under the CC&R’s that sewer pipes are not within any individual owner’s separate interest. Article I, section 6 of the CC&Rs for Dover Village says: “The following are not a part of the Unit: roofs, foundations, below finished pad elevation, pipes, ducts, flues, chutes, conduits, wires and other utility installations wherever located, except the portions thereof located within the physical boundaries of the Unit.” (Italics added.)The question is whether a given pipe that can be said to exclusively service a unit is a “exclusive use common area appurtenant” for purposes of section 1364.
Two exclusive use common areas are expressly mentioned in the CC&R’s: Patio and garage areas. Article XIX expressly designates patio and garage areas for the exclusive use and enjoyment of a single unit: Unit owners “shall . . . be entitled to the exclusive use and possession of the patio area and garage area designated for the use of said unit. . . . It shall be the duty of the unit owner . . .to maintain the interior of said patio and garage.”
Finally, the CC&R’s give the Association power to make repairs and structural alterations to particular units, and then assess the costs to the individual owner. Article V is generally devoted to the Association board’s powers. Section 5 of Article V, subdivision (l), provides that the board shall [128] have power “To acquire and pay for any other materials, supplies, furniture, labor, services, maintenance, repairs, structural alterations, insurance, taxes or assessments which the Board is required to secure or pay for pursuant to the terms of these restrictions or by law, or which in its opinion shall be necessary or proper for the operation of the common area or for the enforcement of these restrictions, provided that if any such materials, supplies, furniture, labor, services, maintenance, repairs, structural alterations, insurance, taxes or assessments are provided for particular units, the costs thereof shall be specifically addressed to the owners of such units.” (Italics added.)
DISCUSSION
As shown above, under the Association’s by-laws, garage and patio areas are expressly classified as “exclusive use common areas appurtenant.” Such a conclusion, of course, makes sense: Ordinary condominium buyers might expect a secure place to park and exclusive use of the patio immediately adjacent to their units. The question is whether sewer lines also come within the same category.
[2]Under the rule of “expressio unius est exclusio alterius” — say one thing and impliedly exclude the other — the most natural reading of the CC&R’s is that sewer lines are not “exclusive use common areas appurtenant.” By expressly saying patio and garage areas come within the category, the CC&R’s impliedly say that sewer lines do not.(Cf. People v. Palacios(2007) 41 Cal.4th 720, 732 [as applied to statutory construction, expressio unius maxim means that “‘if exemptions are specified in a statute, we may not imply additional exemptions unless there is a clear legislative intent to the contrary'”].)
The Association asserts two counterarguments, one based on language in the CC&R’s and the other on language in the Davis-Stirling Act.
A. The Structural Alteration Clause
The argument from the CC&R’s is based on Article V’s structural alteration clause. The Association reasons that because unit owners can be individually charged for structural alterations, they can similarly be charged for sewer pipes outside their units.
The argument fails because it is circular; that is, it proves nothing. If one begins with the premise that sewer pipes servicing a particular unit already fall into the category of “exclusive use common area appurtenant,” then one can say that repairs to such pipes are indeed “for particular units.” But one [129] must first establish that a sewer pipe is such an “exclusive use common area appurtenant,” and, as we have seen, the only explicit mention of such exclusive use areas in the CC&R’s are the patio and garage areas.
B. The Fixture Statute
[3] The argument based on the Davis-Stirling Act is rooted in section 1351, subdivision (i)’s inclusion of fixtures as “exclusive use common areas.” This argument fails for two reasons. First and most fundamentally,interconnected sewer pipes cannot really be said to be the “fixtures” of any particular unit. A sewer system is a series of interconnected pipes which ultimately feed into one common line. Differentiating parts of that interconnected system is unreasonable. The portion of piping coming from one unit is no more affixed to that unit than it is to the sewer system and other pipes or piping within that system.
[4] In this regard, another fancy Latin phrase, ejusdem generis, operates. (See In re Tobacco Cases I (2010) 186 Cal.App.4th 42, 48 [“‘the general term or category is “restricted to those things that are similar to those which are enumerated specifically”‘”].) Under the canon of ejusdem generis, one determines whether a given thing comes within a more general category — here, “other fixtures designed to serve a single separate interest” — by comparing it to other things specifically mentioned in that category.
In section 1351, subdivision (i), here are the things specifically mentioned as being exclusive use common areas: “shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patio, exterior doors, doorframes, and hardware incident thereto, screens and windows.”
Some pipes — for example, drain pipes exclusively servicing one unit and not connected to any other system of piping — might indeed come within the category, because they can be said to be, like shutters and window boxes, “designed to serve a single separate interest.” But a piece of a system of interconnected sewer piping does not fit: It is, literally, physically connected to every other piece of the system. Every unit’s sewer pipes are a “fixture” of every other unit’s sewer pipes.
The second reason the argument fails is the clause in section 1351, subdivision (i) that allows for a different result if the CC&R’s so provide. As shown above, the most natural reading of these CC&R’s is that sewer pipes, as distinct from patio and garages, are not contemplated as exclusive use common areas. [130]
C. Confirmation in Other Sections of the CC&R’s
Our conclusion, that the portion of piping connecting Jennison’s condo with the sewer system is not an exclusive use common area, is confirmed by language in Article VIII of the CC&R’s that indicate that common areas — including exclusive use common areas — are areas to which owners generally have access. Section 2 of Article VIII precludes individual owners from any “obstruction of the common area without prior consent of the Board.” Section 6 of Article VIII precludes any “noxious or offensive activity” in any common area. And significantly, section 7 provides: “Nothing shall be altered or constructed in or removed from the common area, except upon the written consent of the Board.” Such language is perfectly consistent with normal patio and garage use. It is not consistent with the idea that individual unit owners somehow control the sewer lines beyond the boundaries of their unit.
D. The Argument from Deference
Finally, the Association makes what we might call a “deference argument,” i.e., it asserts that its determination of whether a portion of sewer line was exclusive use common area is a matter committed to its discretion, to which the courts should accord it deference. The argument fails because it confuses a legal issue governed by statutory and contract text with matters that genuinely do lend themselves to board discretion.
The case primarily relied on by the Association for its discretion argument is, in fact, a nice illustration of matters genuinely within a board’s discretion. In Lamden v. La Jolla Shores Clubdominium Homeowners Assn.(1999) 21 Cal.4th 249, a unit owner disputed the homeowner association’s preferred method of treating termite infestation. The owner, supported by inspection reports, wanted fumigation. The board decided on “spot-treatment.” (Id. at pp. 253-254.) The board’s decision was ultimately upheld by the Supreme Court because it was a matter “entrusted” to the board’s “discretion.” (Id. at p. 265.)
There is an obvious difference between a legal issue over who precisely has the responsibility for a sewer line and how a board should go about making a repair that is clearly within its responsibility. But we know of no provision in the Davis-Stirling Act or the CC&R’s that makes the Association or its board the ultimate judge of legal issues affecting the development.
CONCLUSION
Because our decision today is solely a matter of the applicable texts, we need not deal with issues raised by the Association as to issues of parol evidence or estoppel. By the same token, there are no issues involving the [131] reasonableness of the attorney fee and cost award assuming a judgment in Jennison’s favor. The judgment and fee and cost awards are affirmed. Respondent Jennison shall recover his appellate fees and costs.
[Architectural Control; Board Powers] An association’s board of directors may not adopt rules that are in conflict with the CC&Rs.
Kulik, Gottesman, Mouton & Siegel, LLP, Thomas M. Ware II, Sharon Barber; Borton, Petrini & Conron, LLP, Matthew J. Trostler for Defendant and Appellant.
Enterprise Counsel Group, David A. Robinson, Benjamin P. Pugh; Jeffrey Lewis for Plaintiffs and Respondents.
OPINION
O’LEARY, J.-
Marquesa at Monarch Beach (Marquesa) is a common interest development governed by the Davis-Stirling Common Interest Development Act (Civ. Code, § 1350, et. seq.). It is comprised of single family homes in the Monarch Beach development of Dana Point, many of which have ocean and golf course views. The community is managed by the Marquesa at Monarch Beach Homeowners Association (the Association), which is governed by a board of directors (the Board), and is subject to a recorded declaration of conditions, covenants, and restrictions (CC&Rs).
Plaintiffs are individual homeowners within Marquesa whose views have been blocked by many palm trees in the development (some planted by the original developer, and some planted by homeowners), which have grown to heights exceeding the rooftops. [FN. 1] Because trimming a palm tree would effectively require its removal, the Association has taken the position over the[1114]years that the CC&Rs’ express requirement “[a]ll trees” on a lot be trimmed so as to not exceed the roof of the house on the lot, unless the tree does not obstruct views from other lots, does not apply to palm trees. Accordingly, it denied the Plaintiffs’ demands that it enforce the CC&Rs and require offending palm trees be trimmed, topped, or removed.
The trial court granted the Plaintiffs’ request for declaratory relief and mandamus to compel the Association to enforce its CC&Rs. The Association appeals contending: (1) the business judgment rule precludes judicial intervention in this matter; (2) the judgment is overbroad and void for vagueness; and (3) the judgment is void because the Plaintiffs did not join as defendants the individual homeowners whose trees might be affected by the judgment. We reject the contentions and affirm the judgment.
FACTS & PROCEDURE
CC&Rs
The Marquesa CC&Rs, recorded in 1989, provide for approval of all exterior improvements by the Association’s Architectural Review Committee (ARC). Section 7.13 of the CC&Rs requires the owner of each lot to submit an exterior landscaping plan to the ARC for approval and “[e]ach Owner shall properly maintain and periodically replace when necessary all trees, plants, grass, vegetation and other landscaping improvements located on the Owner’s lot. . . . If any Owner fails to install or maintain landscaping in conformance with architectural rules . . . the [ARC] . . . shall have the right either to seek any remedies at law or in equity which it may have or to correct such condition and to enter upon such Owner’s property for the purpose of doing so, and such Owner shall promptly reimburse the [ARC] for the cost thereof. . . .”
Section 7.10 of the CC&Rs provides: “View Impairment. Each Owner, by accepting a deed to a Lot, acknowledges that grading of, construction on or installation of improvements on other property within [the development] and surrounding real property may impair the view of such Owner, and consents to such impairment.”
Section 7.18 of the CC&Rs, pertaining to plantings, provides: “Trees. All trees, hedges and other plant materials shall be trimmed by the Owner of the Lot upon which they are located so that they shall not exceed the height of the house on the Lot; provided, however, that where trees do not obstruct the view from any of the other Lots in the Properties, which determination shall be within the sole judgment of the [ARC], they shall not be required to be so[1115]trimmed. Before planting any trees, the proposed location of such trees shall be approved in writing by the [ARC] which approval shall consider the effect on views from other lots.”
Section 13.1 of the CC&Rs, regarding their enforcement, provides: “The Association, Declarant and any Owner shall have the right to enforce, by any proceedings at law or in equity, all restrictions, conditions, covenants and reservations now or hereafter imposed by the [CC&Rs]. Failure by the Association, Declarant or any Owner to enforce any covenants or restrictions contained in the [CC&Rs] shall [not] be deemed a waiver of the right to do so thereafter.” [FN. 2]
The Plaintiffs Buy View Homes
When each of the Plaintiffs purchased their homes in Marquesa, their homes had ocean and/or golf course views for which they paid a premium. Many of those views are now blocked by palm trees, which have been allowed to grow far above the height of the houses on the lots on which they are situated.
Plaintiff John Schoffel testified that when he moved into his house in 1997, he had a full ocean view that was not blocked by any trees. By 2002, he noticed palm trees growing into his view and by the time of trial, his home’s view was about 40 percent blocked by 15 to 20 palm trees.
When Plaintiff Robert Ekstrom bought his home in 1999, it had a full ocean view. At that time, no palm trees in the community exceeded the height of the rooftops. Ekstrom’s downhill neighbor, Davis Christakes–a member of the Association’s Board of Directors–had about 20 palm trees growing on his property. Ekstrom reviewed the CC&Rs before his purchase and was satisfied section 7.18 would require Christakes’ trees be trimmed or removed if they grew above the roofline and blocked Ekstrom’s view.
Plaintiff Steve Kron bought his house with a full ocean view in 2001. Concerned that palm trees might grow to interfere with that view, Kron[1116]reviewed the CC&Rs prior to closing escrow and understood that section 7.18 would protect his view from the trees.
There was evidence the Association routinely enforced section 7.18 of the CC&Rs as to other tree species, ordering homeowners to trim their trees when they exceeded the height of the house. There was also evidence that when approving an individual homeowners landscape plans in 1991, the ARC specifically did so on the condition that if any approved tree grew to a height where it became a view obstruction, the owner would be required to have the tree topped, trimmed, or removed. And on at least one occasion in 1992, the ARC advised a homeowner that palm trees (apparently planted without ARC approval), had become a view obstruction from adjoining lots and must be removed or relocated to an area where they would not interfere with neighbors views.
Christakes, who served on the Association Board for many years, owned a property on which over 20 palm trees are planted, several of which are among those now blocking the Plaintiffs’ views. He participated over the years in Board actions concerning the enforcement of section 7.18 of the CC&Rs, consistently taking the position that section 7.18 could not be enforced as to palm trees. When a resident suggested Christakes had a conflict of interest as to the applicability of section 7.18 to palm trees, Christakes told her that since he had lost his own ocean view due to construction outside the development, he did not care if she lost hers as well, and if she did not like the Board’s decision to exclude palm trees completely from enforcement under section 7.18, she could file a legal action.
View Home Owners Start to Complain
Sometime in 2002, various homeowners, including some of the Plaintiffs, saw their views being slowly eroded by growing palm trees. They demanded the Association enforce section 7.18 of the CC&Rs and require the offending trees be trimmed (or removed). The majority of the Board was of the opinion the aesthetic benefit to the entire community from the maturing and now very lush looking palm trees outweighed the value of preserving views of just a few homeowners. Since then, the community has been divided into two contentious factions: those opposing any effort to top or remove any existing palm tree and those wanting palm trees that obstruct individual homeowners’ views topped or removed.
In May 2002, the Board asked its then attorney, Gary Dapelo, for a legal opinion as to the interpretation of the CC&R’s and the Board’s responsibilities regarding enforcement of the CC&Rs as to palm trees. Dapelo opined the CC&Rs did not give any homeowner a right to maintain an existing view[1117]because section 7.10 acknowledged grading and construction of improvements could impair an existing view. Section 7.18 gave the ARC (which in this case was the Board) sole discretion to decide that a tree did not obstruct a view and thus trimming or removal of the tree was not required. Dapelo opined that consistent with that discretion, the Board could exempt all palm trees entirely from enforcement. Dapelo also concluded homeowners with palms trees had defenses they could assert to any attempt to enforce section 7.18 of the CC&Rs making it unlikely the Association would prevail in any attempt to require any palm tree be trimmed or removed.
In June 2002, the Board sent a memorandum to all homeowners advising them it had decided it would be unreasonable to require any homeowner to top or remove any palm tree in the community. It referred homeowners to a set of Board Rules and Regulations adopted in 1996, in which palm trees were specifically excluded from section 7.18 of the CC&Rs, and which stated palm trees need only be trimmed to remove dead fronds.
In 2003, a newly elected board member, who sympathized with the home owners wanting to preserve their views, prevailed upon the Board to obtain a second legal opinion. It had been discovered that Christakes had a close personal relationship with Dapelo, who was inexperienced in representing homeowner’s associations. In 2004, the Association retained attorney Richard Tinnelly to review the matter.
In May 2004, Tinnelly advised the Board that section 7.18 of the CC&Rs protected views from being obscured by trees growing above roof height on the lot where the tree was located, and the Board had no authority to exclude palm trees from application of the CC&Rs. Tinnelly advised the Board that CC&Rs section 7.10, concerning view impairment, applied to construction of physical improvements on properties, such as houses, fences, decks, but did not apply to view obstruction by trees, because that was specifically covered by section 7.18. He advised the Board it had no authority to promulgate rules and regulations that directly contradicted the express protection provided in the CC&Rs. Tinnelly advised the Board that if it wanted to continue with its policy of the wholesale exclusion of palm trees from the ambit of section 7.18, it would have to amend the CC&Rs, a prospect Tinnelly believed had little chance of success.
Tinnelly recommended to the Board that as to existing palm trees, it should ascertain which specific palm trees interfered with views and as to those trees, the Board should determine which were planted with ARC approval (as part of a homeowner’s approved landscaping plan), and which were planted without approval. As to palm trees planted with ARC approval, Tinnelly believed the homeowner might have detrimental reliance defense to forced[1118]removal of the tree and the Board would need to look at each case individually to determine the possibility of success in any attempt to have the trees removed. Tinnelly advised the Board to require trimming or removal of unapproved palm trees growing above roof lines if it determined the tree blocked a view. He believed the Board did have discretion to formulate a definition of view.
The Board then attempted to amend the CC&Rs to exempt palms trees entirely from section 7.18, but could not garner sufficient homeowner votes. After the amendment attempt failed, one Board member commented within hearing of a homeowner that the Board could adopt regulations defining what constituted a view so narrowly that no palm trees would have to be removed.
Litigation Begins
In September 2004, Ekstrom wrote to the Board again about the palm trees obstructing his view. The Board did not respond. In November, the Plaintiffs’ attorney wrote to the Board demanding it begin enforcing section 7.18 as to palm trees that were obstructing the Plaintiffs’ views, and requesting mediation of the dispute.
At a board meeting on December 9, 2004, Tinnelly again urged the Board to start enforcing section 7.18 as to palm trees. He also urged the Board to engage in mediation with the Plaintiffs. Chrisakes commented that 75 percent of the homeowners did not want any palms trees removed and the Plaintiffs should be forced to “spend their own money if they want to sue to have trees removed.” The Association refused to participate in mediation, and the Plaintiffs filed this action on December 17, 2004, seeking enforcement of the CC&Rs. The Plaintiffs’ declaratory relief cause of action sought a declaration the Association had a duty to enforce section 7.18 as to growing palm trees, and sought an injunction directing the Board to appoint a committee to make a determination as to which palm trees obstructed the Plaintiffs’ views and to direct that those trees be trimmed or removed as necessary. [FN. 3]
The Board Adopts New Rules Concerning Palm Trees
While this lawsuit was pending, the Board adopted new rules and regulations concerning the enforcement of section 7.18 of the CC&Rs as to palm trees. The 2006 rules defined “view” as used in section 7.18 as being only that which is visible from the back of the view house, six feet above ground level, standing in the middle of the outside of the house looking straight[1119]ahead to infinity, with nothing to the left or right of the lot lines being considered part of the home’s view. This definition of “view” precluded most of the Plaintiffs from claiming any view obstruction from palm trees either because of the shape of the lot (for example the Ekstroms’ lot was pie shaped with the narrow point being at the back of the lot), or because the Plaintiffs’ primary view was from the second floor of the house, not the first.
The 2006 rules provided no palm tree planted before adoption of the rules would be removed without the tree owners’ approval. If the owner of the palm tree agreed to permit a palm tree be removed, the owner of the view lot would have to pay the cost of removal. The rules set out requirements for trimming and maintenance of each palm tree species (e.g., how many fronds the palm tree could have, which direction the fronds could be pointing, how often a palm tree owner could be required to trim the tree).
Statement of Decision
In its statement of decision, the trial court concluded section 7.18 was included in the CC&Rs to preserve ocean and golf course views. There was nothing unclear or ambiguous in the terms used. The provision required all trees be trimmed down to the height of the roof of the house on the lot where it sits if the tree obstructs the view from another lot. In the context of the CC&Rs, the plain meaning of the term “‘trimmed’ means removed, as by cutting, or cut down to a required size.” The word “[obstruct] means to block from sight or be in the way of (and thus even one palm frond would block some portion of a view)” and the term “[view] means that which is visible to the naked eye while standing, sitting or lying down anywhere in one’s home, or anywhere on one’s Lot, looking in any direction one wishes.” The court rejected the restrictive definition of view as used in the 2006 rules as being in conflict with the CC&R’s.
The trial court concluded section 7.18 (trees must be trimmed) did not conflict with section 7.10 (view impairment from improvements), because the latter provision did not apply to trees or vegetation. It found requiring palms trees be trimmed or topped (even assuming trimming would result in death of the tree) was not unfair to the tree owners as they acquired their properties with knowledge of section 7.18 and its requirement their trees could not be permitted to grow to block views from other lots. The court rejected the Association’s argument section 7.18 gave the ARC discretion to allow all palm trees that exceeded the roof height of the house. That sentence gave the ARC discretion to decide whether a particular palm tree obstructed a neighbor’s view, but not to allow a palm tree that does in fact block a view to remain untrimmed.[1120]
In its statement of decision, the court rejected the Association’s various defenses. The hardship on view lot owners if views (for which they paid a premium price) were destroyed outweighed the hardship on the owner of a palm tree if required to trim or remove the trees. There was no hardship to the Association because the CC&Rs require the owners of trees bear the expense of trimming, and the possibility of lawsuits against the Association by tree owners was speculative.
The four-year statute of limitations applicable to actions to enforce CC&Rs (Code Civ. Proc., § 337) did not commence until homeowners demanded enforcement of the CC&Rs in 2002, which was when their views started becoming obscured. The court concluded there was no basis for concluding the Association was estopped to enforce the CC&Rs (by having approved landscaping plans), and there was no evidence to support a waiver (by failing to enforce the CC&Rs) defense.
The court rejected several additional affirmative defenses because they had not been pled by the Association in its answer, or raised by it during trial, but were referenced for the first time in the Association’s request for a statement of decision. They included the business judgment-judicial deference rule, the litigation committee defense, and failure to join indispensible parties. The court also rejected those defenses on the merits as well. The business judgment-judicial deference rule did not apply to acts beyond the authority of the Board. The adoption of the 2006 rules did not resolve the matter because the rules conflicted with the CC&Rs. The “litigation committee” defense was applicable only in the context of shareholder derivative suits. And owners of lots with palm trees that might eventually need to be removed were not indispensible parties to this action.
The Judgment
In its judgment, the court ordered the Association to enforce section 7.18 as to palm trees. It ruled that consistent with the CC&Rs, the ARC had discretion, to be exercised in good faith, to determine whether any particular palm tree exceeding roof height in fact blocked a view, but the Association did not have discretion to exempt from enforcement palm trees that were found to block views. The ARC’s approval of a landscaping plan that included palm trees did not exempt the palm tree from the requirements of section 7.18. The judgment defined “‘view'” as “a view of the ocean or neighboring golf course visible in any direction from anywhere on a homeowner’s lot, inside or outside one’s house.” It defined “‘obstruct'” as “to block from sight or be in the way even partially, and thus even one palm frond could block some portion of a view.” Neither the Plaintiffs nor the Association had waived their rights to enforce the CC&Rs. The individual[1121]homeowners with trees violating section 7.18 were not indispensable parties and principles of res judicata would operate to bind all homeowners to the judgment. The judgment ordered the Association “to enforce [s]ection 7.18 and to utilize every enforcement mechanism available to it under the CC&Rs and the law in order to do so.” The court retained jurisdiction to enforce the judgment including jurisdiction to appoint a special master to ensure the Association’s compliance with the judgment. The Plaintiffs were declared the prevailing parties and awarded their costs and attorney fees.
DISCUSSION
1. Standard of Review
An appealed judgment or order is presumed to be correct, and the appellant bears the burden of overcoming that presumption. (Stevens v. Owens-Corning Fiberglas Corp.(1996) 49 Cal.App.4th 1645, 1657.) The Plaintiffs’ sought and obtained declaratory relief and injunctive relief. Generally, the trial court’s decision to grant or deny such relief will not be disturbed on appeal unless it is clearly shown its discretion was abused. (Salazar v. Eastin (1995) 9 Cal.4th 836, 849-850 [injunctive relief]; Dolan-King v. Rancho Santa Fe Assn.(2000) 81 Cal.App.4th 965, 974 (Dolan-King) [declaratory relief].) Where, however, the essential facts are undisputed, “[I]n reviewing the propriety of the trial court’s decision, we are confronted with questions of law. [Citations.] Moreover, to the extent our review of the court’s declaratory judgment involves an interpretation of the [CC&Rs] provisions, that too is a question of law we address de novo. [Citations.]” (Ibid.)
2. Lamden Judicial Deference Rule
The Association contends the “judicial deference rule” adopted by the California Supreme Court in Lamden v. La Jolla Shores Clubdominium Homeowner’s Assn.(1999) 21 Cal.4th 249 (Lamden), which is an adaptation of the business judgment rule applicable to directors of corporations, precludes judicial review of any of its decisions concerning the enforcement or nonenforcement of section 7.18 of the CC&Rs as to palm trees. We disagree.
“‘The common law business judgment rule has two components–one which immunizes [corporate] directors from personal liability if they act in accordance with its requirements, and another which insulates from court intervention those management decisions which are made by directors in good faith in what the directors believe is the organization’s best interest.’ [Citations.] A hallmark of the business judgment rule is that, when the rule’s [1122] requirements are met, a court will not substitute its judgment for that of the corporation’s board of directors. [Citation.]” (Lamden, supra, 21.Cal.4th at p. 257.)
In Lamden, the owner of a condominium unit objected to the association’s board of directors’ decision to spot treat for termites rather tenting and fumigating the entire building. The Supreme Court adopted a rule it termed as analogous to the business judgment rule, holding “[w]here a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best[1123]interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.” (Lamden, supra,21 Cal.4th at pp. 253, 265.) The Supreme Court adopted the association’s position, at least as far as ordinary managerial decisions are concerned: “Common sense suggests that judicial deference in such cases as this is appropriate, in view of the relative competence, over that of courts, possessed by owners and directors of common interest developments to make the detailed and peculiar economic decisions necessary in the maintenance of those developments.” (Id. at pp. 270-271.)
[1]Lamden’s holding, however, is not so broad as the Association asserts. It applied the “rule of judicial deference to community association board decisionmaking” where owners “seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations’ boards of directors. [Citation.]” (Lamden, supra,21 Cal.4th at pp. 253, 260.) And Lamden did not purport to extend judicial deference to board decisions that are outside the scope of its authority under its governing documents. Lamden specifically reaffirmed the principle that “‘Under well-accepted principles of condominium law, a homeowner can sue the association for damages and an injunction to compel the association to enforce the provisions of the declaration.[Citations.]” (Id.at pp. 268-269, citing Posey v. Leavitt (1991) 229 Cal.App.3d 1236, 1246-1247, Cohen v. Kite Hill Community Assn.(1983) 142 Cal.App.3d 642.)
The Plaintiffs contend the Association has waived the application of the Lamden rule of judicial deference because it is in the nature of an affirmative defense that was not pled in the Association’s answer or litigated at trial. The Association responds it was not required to raise the Lamden rule below because the rule merely embodies the proper standard of judicial review–it is not a defense at all. But the very language used in Lamden, indicates judicial deference is owed only when its has been shown the Association acted after “reasonable investigation, in good faith and with regard for the best interests of the community association and its members . . . .” (Lamden, supra,21 Cal.4th at pp. 253, 265.) A defense of good faith is necessarily factual in nature. (Everest Investors 8 v. McNeil Partners 114 Cal.App.4th 411, 432.) Just as the corporate business judgment rule, which is a rule of judicial deference to good faith management decisions of corporate boards, is a defense (see Finley v. Superior Court 80 Cal.App.4th 1152, 1157), so to is the rule of judicial deference to decisions of homeowner association boards articulated in Lamden. An affirmative defense may be waived if it is not raised below. (California Academy of Sciences v. County of Fresno (1987) 192 Cal.App.3d 1436, 1442.) The defense was raised for the first time after trial in the Association’s request for a statement of decision. The trial court correctly ruled the Association waived application of the Lamden rule of judicial deference by not raising it earlier.(2003) (2000)
Even if the judicial deference rule was not waived, we conclude the trial court correctly found it inapplicable in this instance. We consider the rule in two contexts. First, we consider whether the Association’s position prior to the institution of this litigation that it could simply exempt all palm trees from the purview of section 7.18 of the CC&Rs is entitled to judicial deference. Second, we consider whether the Board’s adoption of the 2006 rules concerning the enforcement of section 7.18 as to palm trees is entitled to judicial deference.
[2] The former issue is not so hard. We review the interpretation of the CC&Rs de novo. (Dolan-King, supra,81 Cal.App.4th at p. 974.) Section 7.18 is not at all ambiguous. It provides that “[a]ll trees, hedges and other plant materials shall be trimmed by the Owner of the Lot upon which they are located so that they shall not exceed the height of the house on the Lot . . . .” (Italics added.) If, however, the ARC determines the trees “do not obstruct the view from any of the other Lots” then the trees do not need to be so trimmed (i.e., they may exceed the height of the house).The only reasonable construction to be given to the provision is that homeowners are afforded protection from having their views obstructed by vegetation, including trees. Nothing in the CC&Rs permits the Association to simply exclude an entire species of trees from section 7.18’s application simply because it prefers the aesthetic benefit of those trees to the community. Even if the Board was acting in good faith and in the best interests of the community as a whole, its policy of excepting all palm trees from the application of section 7.18 was not in accord with the CC&Rs, which require all trees be trimmed so as to not obscure views. The Board’s interpretation of the CC&Rs was inconsistent with the plain meaning of the document and thus not entitled to judicial deference.(Lamden, supra,21 Cal.4th at pp. 253, 265.)[1124]
The Association also argues the trial court was required to defer to the Association’s decision in 2006 to adopt rules to enforce section 7.18 as to palm trees. It urges the new rules represent an appropriate balance between the communities’ interest in maintaining the palm trees and the individual homeowner’s interests in preserving their existing views. Accordingly, the Association argues the 2006 rules render moot the entire dispute.
[3] We disagree the new rules are entitled to judicial deference under Lamden. As with the Board’s prior policy that palm trees are exempt from the CC&Rs, the new rules are in direct conflict with the CC&Rs. The rules specifically exclude all palm trees planted before 2006–which basically means all trees that might currently obscure the Plaintiffs’ views. But section 7.18 does not grant the Association discretion to exclude view-blocking trees, it only gives the ARC discretion to determine whether or not a particular tree blocks a view. Furthermore, the new rules established what might best be called a “bowling alley” definition of what constituted view. Even if the Board had some discretionary authority to define what was meant by view, it was not free to fashion a definition that rendered section 7.18 meaningless. (See Nahrstedt v. Lakeside Village Condominium Assn.(1994) 8 Cal.4th 361, 380-381 [CC&Rs to be interpreted according to rules of contracts with view toward enforcing reasonable intent of parties].)
The Association cites Harvey v. Landing Homeowners Assn.(2008) 162 Cal.App.4th 809, for the proposition the trial court was required to defer to the Association’s chosen method for enforcing the CC&Rs, i.e., the 2006 rules. In Harvey, the association board permitted owners of units adjacent to common area attic space to utilize portions of the common area for exclusive storage. (Id. at p. 813.) The appellate court concluded the association board acted according to the authority granted to it in the CC&Rs. “‘The CC&R’s make clear the Board has the ‘sole and exclusive’ right to ‘manage’ the common area . . . ; to ‘adopt reasonable rules and regulations not inconsistent with the provisions contained in [the CC&R’s]’ relating to that use . . . ; to designate portions of the common area as ‘storage areas’ . . . ; and to authorize it to allow an owner to use exclusively portions of the common area ‘nominal in area’ adjacent to the owner’s unit, provided such use ‘does not unreasonably interfere with any other owner’s use or enjoyment of the project.'” (Id.at pp. 818-819, fn. omitted.)Harvey went on to conclude the Lamden rule of judicial deference applied to more than just ordinary discretionary maintenance decisions. “Under the ‘rule of judicial deference’ adopted by the court in Lamden, we defer to the [b]oard’s authority and presumed expertise regarding its sole and exclusive right to maintain, control and manage the common areas when it granted the fourth floor homeowners the right, under certain conditions, to use up to 120 square feet of inaccessible attic space common[1125]area for rough storage.” (Harvey, supra,162 Cal.App.4th at p. 821.) Harvey is inapposite. In Harvey, the board was acting consistently within the authority granted it in the CC&Rs. Here, the CC&Rs do not give the Board discretion to act as it did.
3. Vagueness and Overbreadth
The Association contends the judgment is void because it is too broad and too vague. Specifically, the Association attacks the language in the judgment ordering it not just to begin enforcing section 7.18, but “to utilize every enforcement mechanism available to it under the CC&Rs and the law in order to do so.”
[4] The Association first contends this language is too broad and impermissibly interferes with its discretion to determine how (and whether and when) to enforce the CC&Rs. It cites us to Lamden, supra,21 Cal.4th 249, Haley v. Casa Del Rey Homeowners Assn.(2007) 153 Cal.App.4th 863, and Beehan v. Lido Isle Community Assn.(1977) 70 Cal.App.3d 858, for the proposition the Association alone has discretion to determine how to enforce its CC&Rs. But as noted in Lamden, when an association refuses to enforce its CC&Rs, a homeowner may seek an injunction compelling it to do so. (Lamden,supra,21 Cal.4th at p. 268 [“‘[u]nder well-accepted principles of condominium law, a homeowner can sue the association for damages and an injunction to compel the association to enforce the provisions of the declaration'”].) In view of the Association’s historical position that it need not and would not enforce section 7.18 as to palm trees, a directive that it utilize all enforcement mechanisms available, is necessary to ensure the Association does not simply now make a token effort.
The Association also complains the directive that it “utilize every enforcement mechanism available to it under the CC&Rs and the law” is vague because it is could be construed as a directive that it commence legal action against specific homeowners who have not been identified. To satisfy the requirement that injunctions concerning real property be specific, the Association argues the judgment must specify “against which homeowners, what properties, and with respect to what trees” it must act. It complains the lack of such direction in the judgment “severely impairs” its ability to comply with the judgment. We disagree.
Under section 7.18, it is the Association, through its ARC, that has the sole discretion under the CC&Rs to determine whether a specific palm tree that has grown beyond roof-top height “obstruct[s] the view from any of the other Lots . . . .” Until now, the Association has simply avoided any exercise of this[1126]discretion by taking the position all palms trees are excluded from the directive. Until the Association begins to do its job, the specific trees that must be trimmed will not be identified. The judgment is sufficiently clear as to what the Association must do. It must comply with its obligations by exercising its discretion “in good faith” to determine which trees obstruct the Plaintiffs’ views and it must then undertake the procedures outlined in the CC&Rs to enforce the CC&Rs as to those trees. The Association cannot feign ignorance of what it should do–it has apparently had no difficulty figuring out how to carry out its responsibilities as to other trees species and has in the past required homeowners to trim or remove such trees.
We are equally unimpressed by the Association’s assertion it should not be required to act at all to enforce section 7.18 as to palm trees because it has not been told how far it must go–specifically, if it must go so far as to commence legal action? The trial court specifically retained jurisdiction to oversee enforcement. (See Molar v. Gates (1979) 98 Cal.App.3d 1, 25.) It is pure speculation as to whether legal action against any homeowner will be necessary. And whether the Association should ultimately seek injunctive relief against any tree owner will have to be judged by the facts in existence at that time. (See Beehan, supra,70 Cal.App.3d at p. 866 [refusal of association to seek injunctive relief against homeowner in violation of CC&Rs “must be judged in light of the facts at the time the board consider[s] the matter”].) In current economic times, it might make little economic sense for the Association to pursue costly litigation against individual homeowners who refuse to comply with the CC&Rs, particularly since it is all the homeowners, including the Plaintiffs who will ultimately bear the cost of such litigation. And in such case, the Plaintiffs are certainly free to pursue their own litigation against individual homeowners to compel removal of any specific offending palm trees. (See Lamden,supra,21 Cal.4th at p. 268 [homeowner can sue directly to enforce CC&Rs].)
4. Failure to Join Indispensable Parties
The Association contends the judgment is void because the Plaintiffs failed to join as defendants the individual homeowners whose palm trees are obstructing their views as required by Code of Civil Procedure section 389. Accordingly, it argues the court in essence permitted an involuntary defense class action in which the rights of the individual tree owners have been adjudicated without their participation in this lawsuit. Because the Association did not raise this issue until after trial, in its request for a statement of decision, it has waived the argument on appeal. (McKeon v. Hastings College (1986) 185 Cal.App.3d 877, 889.) Furthermore, Civil Code section 1368.3 provides an association may defend litigation concerning enforcement of CC&Rs without joining the individual homeowners in the association.[1127]
DISPOSITION
The judgment is affirmed. The Respondents are awarded their costs on appeal.
Rylaarsdam, Acting P. J., and Aronson, J., concurred.
FN 1. The plaintiffs and respondents are Robert and Margaret Ekstrom, James and Shendel Haimes, Michael and Betty Sue Hopkins, Robert and Leona Kampling, Stephen and Cheryl Kron, Jim O’Neil, G. John and Joanne Scheffel, and Nicholas Shubin. For convenience, they will hereafter be referred to collectively as the Plaintiffs, unless the context indicates otherwise. In their respondents’ brief, the Plaintiffs inform us that while this appeal was pending, Robert Kempling passed away. His estate was not substituted in. Additionally, Jim O’Neil and Michael and Betty Sue Hopkins no longer reside in Marquesa, although they have not been dismissed from this action.
FN 2. As written, section 13.1 omitted the word “not,” which we have italicized above, reading, “Failure . . . to enforce any of the [CC&Rs] shall be deemed a waiver of the right to do so thereafter.” The Plaintiffs introduced deposition testimony of the original drafter of the CC&Rs (now Justice Alex McDonald), that this was a typographical error, and the sentence should read “shall not be deemed a waiver” as was his practice in all CC&Rs he drafted [and the norm for CC&Rs]. In its statement of decision, the trial court found the section contained a typographical error and was intended to read as we have recited. The Association does not challenge the court’s conclusion, but does assert the Board in good faith believed that by not enforcing the CC&Rs as to palm trees, it had waived the right to do so.
FN 3. The complaint also contained causes of action against individual Board members and the Association’s property management company. The individual Board members were dismissed after a successful summary judgment motion, and the management association settled.
[Enforcement; Discretion to Litigation] A HOA’s Board of Directors may in its discretion decline to take legal action to enforce a perceived violation of the governing documents.
Joslyn, Roeth, Angerhofer, Olds & Condon and Daniel B. Condon for Plaintiffs and Appellants. Rutan & Tucker and Robert C. Braun for Defendant and Respondent
OPINION
KAUFMAN, J.
T. Edward Beehan and Claire E. Beehan (hereinafter plaintiffs) appeal from a judgment in favor of defendant Lido Isle Community Association (hereinafter Association) denying plaintiffs’ claim for reimbursement for attorney fees and costs incurred in obtaining a stipulated judgment against Robert P. and Loring P. Warmington (hereinafter Warmingtons).
[1] Findings of fact and conclusions of law were waived by plaintiffs’ failure to request them. (Code Civ. Proc., § 632.) Accordingly, we presume in support of the judgment each favorable finding of fact supported by the evidence. (Stewart v. Langer, 9 Cal.App.2d 60, 61 [48 P.2d 758].)
Plaintiffs and the Warmingtons own property situated diagonally across a street from each other on Lido Isle in Newport Beach. The property on Lido Isle is subject to a declaration of protective restrictions executed and recorded in 1928. Association is a nonprofit corporation which was also organized in 1928. The activities in which it is permitted to engage are set forth in the “Purposes Clause” of its articles of incorporation. One of the enumerated purposes is the enforcement of the declaration of protective restrictions.[862]
In November 1973, the Warmingtons submitted architectural plans to Association for approval. Association’s architectural committee reviewed the plans to determine whether there were any setback restrictions and in so doing relied on a booklet entitled “The Declaration of Restrictions” which contained the original restrictions and modifications thereto. The booklet indicated a four-foot setback requirement. Warmingtons’ plans complied. Association therefore approved the plans as submitted. The same plans were approved by the City of Newport Beach and a building permit was issued in December 1973.
Construction of the Warmingtons’ house commenced in January 1974. In February, plaintiffs contacted Mr. William Sprague, Association’s administrator, for the purpose of ascertaining whether the Warmingtons’ structure violated a setback provision in the declaration of restrictions. Mr. Sprague inspected the building site but could not determine whether the construction violated setback requirements. He requested the City of Newport Beach to inspect the premises; the city did so and found that the construction did not breach the restrictions.
On February 25, plaintiffs visited Association’s offices to review the declaration of restrictions and Association’s minute book. The declaration indicated only a four-foot setback requirement on the Warmingtons’ property. From the minute book, however, plaintiffs found copies of minutes from meetings held in 1953 and 1954 which indicated that Association’s board of directors adopted a resolution amending the setback requirement on the Warmingtons’ property and some surrounding property from four feet to six feet. A copy of the amendment had been recorded February 25, 1954. Plaintiffs informed Mr. Sprague of their discovery.
In a continuation of his investigation, Mr. Sprague reviewed the minutes and also reviewed the 1928 declaration of restrictions. This declaration specifies certain procedures that must be followed in order to adopt a valid modification of the restrictions. First, there must be a public hearing. After such hearing, written consent of Association must be given. Finally, written consent must be obtained from more than one-half of the owners of the property within 500 feet of the outer boundaries of the lot or lots on which the restrictions are to be changed.
Mr. Sprague reviewed the minutes and other records of Association to determine the validity of the 1953 modification. The March 11, 1953, minutes state that a public hearing was held on March 14, 1953, three[863]days after the minutes were dated and one month after approval was given by Association’s board of directors. Since the declaration required the public hearing to be held before Association’s approval, this procedure was in conflict with the modification requirements. Moreover, Mr. Sprague could find no evidence that written consent had been obtained from the necessary property owners. He therefore notified members of Association’s board of directors that his examination cast substantial doubt upon the validity of the 1953 amendment.
Prior to the next board meeting, Mr. Sprague photocopied minutes of the 1953 meetings, the resolution adopted at that time, minutes of the 1954 meeting that referred to the purported modification and copies of his memorandum detailing the lack of proof that such modification was validly adopted. He included these in an agenda packet which was distributed to all board members before the meeting. Several board members also visited the construction site before the meeting.
On March 13, the board, on the first of several occasions, considered the problem. Plaintiffs and their attorney appeared and made a presentation supporting their position that a six-foot setback was applicable. The Warmingtons also appeared and presented evidence supporting their contention that a four-foot setback was proper. The meeting was open to all members of Association. An attorney and former members of the board of directors, Mr. Mel Richly, after reviewing the adoption procedure of the alleged 1953 modification, expressed his opinion to the board that the modification was invalid and unenforceable.
A special meeting of the board of directors was held on March 16 for the sole purpose of reviewing the setback matter. In attendance were members of Association’s architectural committee, members of the board, plaintiffs, plaintiffs’ attorney, the Warmingtons and Mr. Sprague. Each side reiterated its respective position. Another discussion ensued regarding the validity and enforceability of the purported amendment. Nevertheless, the problem was not resolved.
On April 17, the next regularly scheduled board meeting was held. After an extensive discussion, the board decided to forgo seeking an injunction against the Warmingtons for violating the alleged 1953 modification of the declaration of restrictions. On April 18, Mr. Sprague informed plaintiffs’ attorney of Association’s decision not to proceed against the Warmingtons.[864]
Having filed suit on or about April 1, on May 7 plaintiffs obtained a preliminary injunction restraining the Warmingtons from proceeding further with the construction of their house. Association’s board of directors held a meeting the following day to again discuss this dispute. Both plaintiffs and the Warmingtons stated their respective positions. After a lengthy period of deliberation, the chairman of the board suggested a compromise whereby the setback on the Warmingtons’ property would be changed to five feet. This proposal was acceptable to the Warmingtons but not to plaintiffs.
Plaintiffs filed their first amended complaint on May 28, 1974. The first count was directed against the Warmingtons and sought a mandatory injunction requiring them to modify the home they were constructing to conform to the alleged six-foot setback requirement. The second count was directed against Association and sought reimbursement for plaintiffs’ fees and costs incurred in the action against the Warmingtons.
In March 1975, plaintiffs and Warmingtons entered into a stipulation for judgment whereby the Warmingtons agreed to modify their house so that it was set back six feet. Association was not a party to this stipulation. Plaintiffs then proceeded to trial against Association. [2a] The case was tried on the second count of plaintiffs’ first amended complaint only and the sole problem confronting the trial court was whether plaintiffs were entitled to reimbursement for costs [FN. 1] and attorneys’ fees incurred in obtaining judgment against the Warmingtons. [FN. 2]
Plaintiffs are vague as to their theory of recovery. Although they speak in terms of negligence and implied indemnity, these theories would not support an award of attorney fees and costs against Association. In the absence of an express or implied agreement (Code Civ. Proc., § 1021), the only theory of which we are aware under which plaintiffs might recover attorney fees and costs from Association is the substantial benefit rule, a variant of the common fund doctrine under which attorney fees are frequently allowed in shareholder derivative actions. (See Fletcher v. A. J. Industries, Inc., 266 Cal.App.2d 313, 320 [72 Cal.Rptr. 146], and authorities there cited.) Perhaps this was the theory plaintiffs had in mind, for they attempted to prove each of the conditions necessary to[865]recovery on that theory, to wit: (1) defendant Association is a corporation; (2) plaintiffs are shareholders or members; (3) Association refused to act after a proper demand upon it; (4) such refusal constituted an abuse of managerial discretion; (5) plaintiffs successfully proceeded with the suit; and (6) by doing so plaintiffs rendered a substantial benefit to Association. (Cf. Corp. Code, § 800; Fletcher v. A. J. Industries, Inc., supra, 266 Cal.App.2d at pp. 318-319.)
The trial court impliedly found that in refusing to take action against the Warmingtons, Association’s board of directors did not abuse their managerial discretion. fn. 3 This finding of the trial court is supported by substantial evidence and is, therefore, decisive. (Cf. Fletcher v. A. J. Industries, Inc., supra, 266 Cal.App.2d at p. 325.)
Preliminarily, Association asserts that it was under no obligation to take action against the Warmingtons. Plaintiffs point to the express enumeration in Association’s articles of incorporation that one of its purposes is the enforcement of the declaration of protective restrictions. Association asserts that the enumeration of purposes in its articles of incorporation empowers it to act but does not oblige it to do so. We need not resolve this question. For purposes of this decision we shall assume Association was obligated in appropriate circumstances to take action to enforce the declaration of restrictions.
[3] Nevertheless, neither a court nor minority shareholders can substitute their business judgment for that of a corporation where its board of directors has acted in good faith and with a view to the best interests of the corporation and all its shareholders. (Marsili v. Pacific Gas & Elec. Co., 51 Cal.App.3d 313, 324 [124 Cal.Rptr. 313]; Fairchild v. Bank of America, 192 Cal.App.2d 252, 256-257 [13 Cal.Rptr. 491]; Findley v. Garrett, 109 Cal.App.2d 166, 174-175 [240 P.2d 421].)”The power to manage the affairs of a corporation is vested in the board of directors. [Citation omitted.]Where a board of directors, in refusing to commence an action to redress an alleged wrong against a corporation, acts in good faith within the scope of its discretionary power and reasonably believes its refusal to commence the action is good business judgment in the best interest of the corporation, a stockholder is not authorized to interfere with such discretion by commencing the action….’Every presumption is in favor of the good faith of the directors. Interference with such discretion is not warranted in doubtful cases.'”[866](Findley v. Garrett, supra, 109 Cal.App.2d at p. 174; accord: Fornaseri v. Cosmosart Realty & Bldg. Corp., 96 Cal.App. 549, 557 [274 P. 597].)
[2b]The refusal of Association’s board of directors to seek injunctive relief against the Warmingtons must be judged in light of the facts at the time the board considered the matter. There would be difficulty in proving the 1953 setback amendment was validly enacted. The minutes indicated public hearing was held after Association’s approval rather than before, and it could not be established that written consent had been obtained from the required number of property owners. Eighteen of the twenty one homes in the area affected by the alleged 1953 amendment were in violation of the six-foot setback requirement, thus making it doubtful whether Association could prevail in an injunctive action against the Warmingtons. Association’s funds were committed, in large part, to pay for services which benefited the entire community, such as beach and clubhouse maintenance, lifeguards, gardeners and administrative staff. Apparently, the board believed that the utility of incurring substantial attorney fees in prosecuting a lawsuit of questionable merit was outweighed by the possible curtailment of normal services.
The fact that the board refused to bring suit even after a preliminary injunction was issued is not decisive. [4] It has been said that a court will deny a preliminary injunction unless there is a reasonable probability that the plaintiff will be successful on the merits, but the granting of a preliminary injunction does not amount to an adjudication of the merits. (Continental Baking Co. v. Katz, 68 Cal.2d 512, 528 [67 Cal.Rptr. 761, 439 P.2d 889].) The function of a preliminary injunction is the preservation of the status quo until a final determination of the merits. (Id.) [5] Moreover, “[t]he mere fact that a recovery for the corporation would probably result from litigation does not require that an action be commenced to enforce the claim. Even if it appeared to the directors … that at the end of protracted litigation substantial sums could be recovered from some or all of the defendants, that fact alone would not have made it the duty of the directors to authorize the commencement of an action.It would have made it their duty to weigh the advantages of a probable recovery against the cost in money, time and disruption of the business of the company which litigation would entail. … [6]A mistake of judgment on the part of a board of directors does not justify taking the control of corporate affairs from the board of directors and placing it with the stockholders. The board of directors may make incorrect decisions, as well as correct ones, so long as it is faithful to the[867]corporation and uses its best business judgment.”(Findley v. Garrett, supra, 109 Cal.App.2d at pp. 177-178.)
[2c] From the foregoing discussion, it is manifest that the court’s finding that Association’s board of directors did not abuse its managerial discretion is supported by substantial evidence. That determination makes unnecessary our consideration of Association’s further claim that plaintiffs’ suit conferred no substantial benefit on the Association.
Association contends that plaintiffs’ appeal is frivolous and that we should therefore impose sanctions against them. Although we have not found the appeal meritorious, we cannot say it was wholly insubstantial or not taken in good faith. Accordingly, we do not classify the appeal as frivolous.
The judgment is affirmed. In the interest of justice, neither party shall recover costs.
Tamura, Acting P. J., and Morris, J., concurred.
FN 1. Plaintiffs did not recover costs against the Warmingtons because the stipulation for judgment provided that the parties were to bear their own costs.
FN 2. The procedure followed by plaintiffs was not challenged. By recounting it, we do not express our approval of it.
[Rule of Judicial Deference; Maintenance] Courts will defer to decisions made by a HOA Board of Directors regarding ordinary maintenance of a common interest development.
Robert H. Lynn for Plaintiff and Appellant.
Mayfield & Associates and Gayle J. Mayfield for Common Interest Consumer Project as Amicus Curiae on behalf of Plaintiff and Appellant.
Robie & Matthai, James R. Robie, Kyle Kveton, Pamela E. Dunn, Claudia M. Sokol and Daniel J. Koes for Defendant and Respondent.
Weintraub Genshlea & Sproul, Curtis C. Sproul; Farmer, Weber & Case, John T. Farmer, Kimberly F. Rich; Even, Crandall, Wade, Lowe & Gates, Edwin B. Brown; Peters & Freedman, Simon J. Freedman and James R. McCormick, Jr., as Amici Curiae on behalf of Defendant and Respondent.
Hazel & Thomas, Michael A. Banzhaf, Robert M. Diamond and Michael S. Dingman for Community Associations Institute as Amicus Curiae on behalf of Defendant and Respondent.
Early, Maslach, Price & Baukol and Priscilla F. Slocum for Truck Insurance Exchange as Amicus Curiae on behalf of Defendant and Respondent.
Martin, Wilson & MacDowell, Scott A. Martin, John R. MacDowell and Steven S. Wang for Desert Falls Homeowners Association and Upland Hills Country Club Condominium Association as Amici Curiae on behalf of Defendant and Respondent.
June Babiracki Barlow and Neil D. Kalin for California Association of Realtors as Amicus Curiae on behalf of Defendant and Respondent.
OPINION
WERDEGAR, J.-
A building in a condominium development suffered from termite infestation. The board of directors of the development’s community association [FN. 1] decided to treat the infestation locally (“spot-treat”), rather than fumigate. Alleging the board’s decision diminished the value of[253]her unit, the owner of a condominium in the development sued the community association. In adjudicating her claims, under what standard should a court evaluate the board’s decision?
As will appear, we conclude as follows: Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise. Thus, we adopt today for California courts a rule of judicial deference to community association board decisionmaking that applies, regardless of an association’s corporate status, when owners in common interest developments seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations’ boards of directors. (Cf. Levandusky v. One Fifth Ave. Apt. Corp.(1990) 75 N.Y.2d 530, 537-538 [554 N.Y.S.2d 807, 811, 557 N.E.2d 1317, 1321] [analogizing a similarly deferential rule to the common law “business judgment rule”].)
Accordingly, we reverse the judgment of the Court of Appeal.
Plaintiff Gertrude M. Lamden owns a condominium unit in one of three buildings comprising the La Jolla Shores Clubdominium condominium development (Development). [FN. 2] Over some years, the board of governors (Board) of defendant La Jolla Shores Clubdominium Homeowners Association (Association), an unincorporated community association, elected to spot-treat (secondary treatment), rather than fumigate (primary treatment), for termites the building in which Lamden’s unit is located (Building Three).
In the late 1980’s, attempting to remedy water intrusion and mildew damage, the Association hired a contractor to renovate exterior siding on all three buildings in the Development. The contractor replaced the siding on[254]the southern exposure of Building Three and removed damaged drywall and framing. Where the contractor encountered termites, a termite extermination company provided spot-treatment and replaced damaged material.
Lamden remodeled the interior of her condominium in 1990. At that time, the Association’s manager arranged for a termite extermination company to spot-treat areas where Lamden had encountered termites.
The following year, both Lamden and the Association obtained termite inspection reports recommending fumigation, but the Association’s Board decided against that approach. As the Court of Appeal explained, the Board based its decision not to fumigate on concerns about the cost of fumigation, logistical problems with temporarily relocating residents, concern that fumigation residue could affect residents’ health and safety, awareness that upcoming walkway renovations would include replacement of damaged areas, pet moving expenses, anticipated breakage by the termite company, lost rental income and the likelihood that termite infestation would recur even if primary treatment were utilized. The Board decided to continue to rely on secondary treatment until a more widespread problem was demonstrated.
In 1991 and 1992, the Association engaged a company to repair water intrusion damage to four units in Building Three. The company removed siding in the balcony area, repaired and waterproofed the decks, and repaired joints between the decks and the walls of the units. The siding of the unit below Lamden’s and one of its walls were repaired. Where termite infestation or damage became apparent during this project, spot-treatment was applied and damaged material removed.
In 1993 and 1994, the Association commissioned major renovation of the Development’s walkway system, the underpinnings of which had suffered water and termite damage. The $1.6 million walkway project was monitored by a structural engineer and an on-site architect.
In 1994, Lamden brought this action for damages, an injunction and declaratory relief. She purported to state numerous causes of action based on the Association’s refusal to fumigate for termites, naming as defendants certain individual members of the Board as well as the Association. Her amended complaint included claims sounding in breach of contract (viz., the governing declaration of restrictions [Declaration]), breach of fiduciary duty, and negligence. She alleged that the Association, in opting for secondary over primary treatment, had breached Civil Code section 1364, subdivision[255](b)(1) [FN. 3] and the Declaration [FN. 4] in failing adequately to repair, replace and maintain the common areas of the Development.
Lamden further alleged that, as a proximate result of the Association’s breaching its responsibilities, she had suffered diminution in the value of her condominium unit, repair expenses, and fees and costs in connection with this litigation. She also alleged that the Association’s continued breach had caused and would continue to cause her irreparable harm by damaging the structural integrity and soundness of her unit, and that she has no adequate remedy at law. At trial, Lamden waived any damages claims and dismissed with prejudice the individual defendants. Presently, she seeks only an injunction and declaratory relief.
After both sides had presented evidence and argument, the trial court rendered findings related to the termite infestation affecting plaintiff’s condominium unit, its causes, and the remedial steps taken by the Association. The trial court found there was “no question from all the evidence that Mrs. Lamden’s unit … has had a serious problem with termites.” In fact, the trial court found, “The evidence … was overwhelming that termites had been a problem over the past several years.” The court concluded, however, that while “there may be active infestation” that would require “steps [to be] taken within the future years,” there was no evidence that the condominium units were in imminent structural danger or “that these units are about to fall or something is about to happen.”
The trial court also found that, “starting in the late ’80’s,” the Association had arranged for “some work” addressing the termite problem to be done. Remedial and investigative work ordered by the Association included, according to the trial court, removal of siding to reveal the extent of damage, a “big project … in the early ’90’s,” and an architect’s report on building design factors. According to the court, the Board “did at one point seriously consider” primary treatment; “they got a bid for this fumigation, and there was discussion.” The court found that the Board also considered possible problems entailed by fumigation, including relocation costs, lost rent, concerns about pets and plants, human health issues and eventual termite reinfestation.[256]
As to the causes of the Development’s termite infestation, the trial court concluded that “the key problem came about from you might say a poor design” and resulting “water intrusion.” In short, the trial court stated, “the real culprit is not so much the Board, but it’s the poor design and the water damage that is conducive to bringing the termites in.”
As to the Association’s actions, the trial court stated, “the Board did take appropriate action.” The court noted the Board “did come up with a plan,” viz., to engage a pest control service to “come out and [spot] treat [termite infestation] when it was found.” The trial judge opined he might, “from a personal relations standpoint,” have acted sooner or differently under the circumstances than did the Association, but nevertheless concluded “the Board did have a rational basis for their decision to reject fumigation, and do … what they did.” Ultimately, the court gave judgment for the Association, applying what it called a “business judgment test.” Lamden appealed.
Citing Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490 [229 Cal.Rptr. 456, 723 P.2d 573, 59 A.L.R.4th 447] (Frances T.), the Court of Appeal agreed with Lamden that the trial court had applied the wrong standard of care in assessing the Association’s actions. In the Court of Appeal’s view, relevant statutes, the governing Declaration and principles of common law imposed on the Association an objective duty of reasonable care in repairing and maintaining the Development’s common areas near Lamden’s unit as occasioned by the presence of termites. The court also concluded that, had the trial court analyzed the Association’s actions under an objective standard of reasonableness, an outcome more favorable to Lamden likely would have resulted. Accordingly, the Court of Appeal reversed the judgment of the trial court.
We granted the Association’s petition for review.
Discussion
“In a community apartment project, condominium project, or stock cooperative … unless otherwise provided in the declaration, the association is responsible for the repair and maintenance of the common area occasioned by the presence of wood-destroying pests or organisms.” (Civ. Code, § 1364, subd. (b)(1).) The Declaration in this case charges the Association with “management, maintenance and preservation” of the Development’s common areas. Further, the Declaration confers upon the Board power and authority to maintain and repair the common areas. Finally, the Declaration provides that “limitations, restrictions, conditions and covenants set forth in this Declaration constitute a general scheme for (i) the maintenance, protection and enhancement of value of the Project and all Condominiums and (ii) the benefit of all Owners.”[257]
[1a] In light of the foregoing, the parties agree the Association is responsible for the repair and maintenance of the Development’s common areas occasioned by the presence of termites. They differ only as to the standard against which the Association’s performance in discharging this obligation properly should be assessed: a deferential “business judgment” standard or a more intrusive one of “objective reasonableness.”
The Association would have us decide this case through application of “the business judgment rule.” As we have observed, that rule of judicial deference to corporate decisionmaking “exists in one form or another in every American jurisdiction.” (Frances T., supra, 42 Cal.3d at p. 507, fn. 14.)
[2a] “The common law business judgment rule has two components-one which immunizes [corporate] directors from personal liability if they act in accordance with its requirements, and another which insulates from court intervention those management decisions which are made by directors in good faith in what the directors believe is the organization’s best interest.” (Lee v. Interinsurance Exchange (1996) 50 Cal.App.4th 694, 714 [57 Cal.Rptr.2d 798], citing 2 Marsh & Finkle, Marsh’s Cal. Corporation Law (3d ed., 1996 supp.) § 11.3, pp. 796-797.) A hallmark of the business judgment rule is that, when the rule’s requirements are met, a court will not substitute its judgment for that of the corporation’s board of directors. (See generally, Katz v. Chevron Corp.(1994) 22 Cal.App.4th 1352, 1366 [27 Cal.Rptr.2d 681].) As discussed more fully below, in California the component of the common law rule relating to directors’ personal liability is defined by statute. (See Corp. Code, §§ 309 [profit corporations], 7231 [nonprofit corporations].)
[1b] According to the Association, uniformly applying a business judgment standard in judicial review of community association board decisions would promote certainty, stability and predictability in common interest development governance. Plaintiff, on the other hand, contends general application of a business judgment standard to board decisions would undermine individual owners’ ability, under Civil Code section 1354, to enforce, as equitable servitudes, the CC&R’s in a common interest development’s declaration. [FN. 5] Stressing residents’ interest in a stable and predictable living environment, as embodied in a given development’s particular CC&R’s,[258]plaintiff encourages us to impose on community associations an objective standard of reasonableness in carrying out their duties under governing CC&R’s or public policy.
For at least two reasons, what we previously have identified as the “business judgment rule” (see Frances T., supra, 42 Cal.3d at p. 507 [discussing Corporations Code section 7231] and fn. 14 [general discussion of common law rule]; United States Liab. Ins. Co. v. Haidinger-Hayes, Inc.(1970) 1 Cal.3d 586, 594 [83 Cal.Rptr. 418, 463 P.2d 770] [reference to common law rule]) does not directly apply to this case. First, the statutory protections for individual directors (Corp. Code, §§ 309, subd. (c), 7231, subd. (c)) do not apply, as no individual directors are defendants here.
Corporations Code sections 309 and 7231 (section 7231) are found in the General Corporation Law (Corp. Code, § 100 et seq.) and the Nonprofit Corporation Law (id., § 5000 et seq.), respectively; the latter incorporates the standard of care defined in the former (Frances T.,supra, 42 Cal.3d at p. 506, fn. 13, citing legis. committee com., Deering’s Ann. Corp. Code (1979 ed.) foll. § 7231, p. 205; 1B Ballantine & Sterling, Cal. Corporation Laws (4th ed. 1984) § 406.01, p. 19-192). Section 7231 provides, in relevant part: “A director shall perform the duties of a director … in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.” (§ 7231, subd. (a); cf. Corp. Code, § 309, subd. (a).) “A person who performs the duties of a director in accordance with [the stated standards] shall have no liability based upon any alleged failure to discharge the person’s obligations as a director ….” (§ 7231, subd. (c); cf. Corp. Code, § 309, subd. (c).)
Thus, by its terms, section 7231 protects only “[a] person who performs the duties of a director” (§ 7231, subd. (c), italics added); it contains no reference to the component of the common law business judgment rule that somewhat insulates ordinary corporate business decisions, per se, from judicial review. (See generally, Lee v. Interinsurance Exchange, supra, 50 Cal.App.4th at p. 714, citing 2 Marsh & Finkle, Marsh’s Cal. Corporation Law, supra, § 11.3, pp. 796-797.) Moreover, plaintiff here is seeking only injunctive and declaratory relief, and it is not clear that such a prayer implicates section 7231. The statute speaks only of protection against “liability based upon any alleged failure to discharge the person’s obligations ….” (§ 7231, subd. (c), italics added.)
As no compelling reason for departing therefrom appears, we must construe section 7231 in accordance with its plain language. (Rossi v. Brown[259] (1995) 9 Cal.4th 688, 694 [38 Cal.Rptr.2d 363, 889 P.2d 557]; Adoption of Kelsey S .(1992) 1 Cal.4th 816, 826 [4 Cal.Rptr.2d 615, 823 P.2d 1216]; Delaney v. Superior Court (1990) 50 Cal.3d 785, 798 [268 Cal.Rptr. 753, 789 P.2d 934].) It follows that section 7231 cannot govern for present purposes.
Second, neither the California statute nor the common law business judgment rule, strictly speaking, protects noncorporate entities, and the defendant in this case, the Association, is not incorporated. [FN. 6]
[2b] Traditionally, our courts have applied the common law “business judgment rule” to shield from scrutiny qualifying decisions made by a corporation’s board of directors. (See, e.g., Marsili v. Pacific Gas & Elec. Co.(1975) 51 Cal.App.3d 313, 324 [124 Cal.Rptr. 313, 79 A.L.R.3d 477]; Fairchild v. Bank of America(1961) 192 Cal.App.2d 252, 256-257 [13 Cal.Rptr. 491]; Findley v. Garrett(1952) 109 Cal.App.2d 166, 174-175 [240 P.2d 421]; Duffey v. Superior Court(1992) 3 Cal.App.4th 425, 429 [4 Cal.Rptr.2d 334] [rule applied to decision by board of incorporated community association]; Beehan v. Lido Isle Community Assn.(1977) 70 Cal.App.3d 858, 865 [137 Cal.Rptr. 528] [same].) The policies underlying judicial creation of the common law rule derive from the realities of business in the corporate context. As we previously have observed: “The business judgment rule has been justified primarily on two grounds. First, that directors should be given wide latitude in their handling of corporate affairs because the hindsight of the judicial process is an imperfect device for evaluating business decisions. Second, ‘[t]he rule recognizes that shareholders to a very real degree voluntarily undertake the risk of bad business judgment; investors need not buy stock, for investment markets offer an array of opportunities less vulnerable to mistakes in judgment by corporate officers.’ ” (Frances T., supra, 42 Cal.3d at p. 507, fn. 14, quoting 18B Am.Jur.2d (1985) Corporations, § 1704, pp. 556-557; see also Findley v. Garrett, supra, “109 Cal.App.2d at p. 174.)
[1c] California’s statutory business judgment rule contains no express language extending its protection to noncorporate entities or actors. Section[260]7231, as noted, is part of our Corporations Code and, by its terms, protects only “director[s].” In the Corporations Code, except where otherwise expressly provided, “directors” means “natural persons” designated, elected or appointed “to act as members of the governing body of the corporation.” (Corp. Code, § 5047.)
Despite this absence of textual support, the Association invites us for policy reasons to construe section 7231 as applying both to incorporated and unincorporated community associations. (See generally, Civ. Code, § 1363, subd. (a) [providing that a common interest development “shall be managed by an association which may be incorporated or unincorporated”];id., subd. (c) [“Unless the governing documents provide otherwise,” the association, whether incorporated or unincorporated, “may exercise the powers granted to a nonprofit mutual benefit corporation, as enumerated in Section 7140 of the Corporations Code.”];Oil Workers Intl. Union v. Superior Court(1951) 103 Cal.App.2d 512, 571 [230 P.2d 71], quoting Ottov.Tailors’ P. & B. Union (1888) 75 Cal. 308, 313 [17 P. 217] [when courts take jurisdiction over unincorporated associations for the purpose of protecting members’ property rights, they ” ‘will follow and enforce, so far as applicable, the rules applying to incorporated bodies of the same character’ “];White v. Cox(1971) 17 Cal.App.3d 824, 828 [95 Cal.Rptr. 259, 45 A.L.R.3d 1161] [noting that “unincorporated associations are now entitled to general recognition as separate legal entities”].) Since other aspects of this case-apart from the Association’s corporate status-render section 7231 inapplicable, anything we might say on the question of the statute’s broader application would, however, be dictum. Accordingly, we decline the Association’s invitation to address the issue.
For the foregoing reasons, the “business judgment rule” of deference to corporate decisionmaking, at least as we previously have understood it, has no direct application to the instant controversy. The precise question presented, then, is whether we should in this case adopt for California courts a rule-analogous perhaps to the business judgment rule-of judicial deference to community association board decisionmaking that would apply, regardless of an association’s corporate status, when owners in common interest developments seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations’ boards of directors. (Cf. Levandusky v. One Fifth Ave. Apt. Corp., supra, 75 N.Y.2d at p. 538 [554 N.Y.S.2d at p. 811] [referring “for the purpose of analogy only” to the business judgment rule in adopting a rule of deference].)
Our existing jurisprudence specifically addressing the governance of common interest developments is not voluminous. While we have not previously[261]examined the question of what standard or test generally governs judicial review of decisions made by the board of directors of a community association, we have examined related questions.
Fifty years ago, in Hannula v. Hacienda Homes (1949) 34 Cal.2d 442 [211 P.2d 302, 19 A.L.R.2d 1268], we held that the decision by the board of directors of a real estate development company to deny, under a restrictive covenant in a deed, the owner of a fractional part of a lot permission to build a dwelling thereon “must be a reasonable determination made in good faith.” (Id. at p. 447, citing Parsons v. Duryea (1927) 261 Mass. 314, 316 [158 N.E. 761, 762]; Jones v. Northwest Real Estate Co.(1925) 149 Md. 271, 278 [131 A. 446, 449]; Harmon v. Burow (1919) 263 Pa. 188, 190 [106 A. 310, 311].) Sixteen years ago, we held that a condominium owners association is a “business establishment” within the meaning of the Unruh Civil Rights Act, section 51 of the Civil Code. (O’Connor v. Village Green Owners Assn.(1983) 33 Cal.3d 790, 796 [191 Cal.Rptr. 320, 662 P.2d 427]; but see Harris v. Capital Growth Investors XIV(1991) 52 Cal.3d 1142, 1175 [278 Cal.Rptr. 614, 805 P.2d 873] [declining to extend O’Connor]; Curran v. Mount Diablo Council of the Boy Scouts(1998) 17 Cal.4th 670, 697 [72 Cal.Rptr.2d 410, 952 P.2d 218] [same].) And 10 years ago, in Frances T., supra, 42 Cal.3d 490, we considered “whether a condominium owners association and the individual members of its board of directors may be held liable for injuries to a unit owner caused by third-party criminal conduct.” (Id. at p. 495.)
[3a] In Frances T., a condominium owner, who resided in her unit, brought an action against the community association, a nonprofit corporation, and the individual members of its board of directors after she was raped and robbed in her dwelling. She alleged negligence, breach of contract and breach of fiduciary duty, based on the association’s failure to install sufficient exterior lighting and its requiring her to remove additional lighting that she had installed herself. The trial court sustained the defendants’ general demurrers to all three causes of action. (Frances T., supra, 42 Cal.3d at p. 495.) We reversed. A community association, we concluded, may be held to a landlord’s standard of care as to residents’ safety in the common areas (id. at pp. 499-500), and the plaintiff had alleged particularized facts stating a cause of action against both the association and the individual members of the board (id. at p. 498). The plaintiff failed, however, to state a cause of action for breach of contract, as neither the development’s governing CC&R’s nor the association’s bylaws obligated the defendants to install additional lighting. The plaintiff failed likewise to state a cause of action for breach of fiduciary duties, as the defendants had fulfilled their duty to the plaintiff as a shareholder, and the plaintiff had alleged no facts to show that[262]the association’s board members had a fiduciary duty to serve as the condominium project’s landlord. (Id. at pp. 512-514.)
In discussing the scope of a condominium owners association’s common law duty to a unit owner, we observed in Frances T. that “the Association is, for all practical purposes, the Project’s ‘landlord.’ ” (Frances T., supra, 42 Cal.3d at p. 499, fn. omitted.) And, we noted, “traditional tort principles impose on landlords, no less than on homeowner associations that function as a landlord in maintaining the common areas of a large condominium complex, a duty to exercise due care for the residents’ safety in those areas under their control.” (Ibid., citing Kwaitkowski v. Superior Trading Co.(1981) 123 Cal.App.3d 324, 328 [176 Cal.Rptr. 494];O’Hara v. Western Seven Trees Corp.(1977) 75 Cal.App.3d 798, 802-803 [142 Cal.Rptr. 487];Kline v. 1500 Massachusetts Avenue Apartment Corp.(1970) 439 F.2d 477, 480-481 [141 App.D.C. 370, 43 A.L.R.3d 311];Scott v. Watson(1976) 278 Md. 160 [359 A.2d 548, 552].) We concluded that “under the circumstances of this case the Association should be held to the same standard of care as a landlord.” (Frances T., supra, 42 Cal.3d at p. 499; see also id. at pp. 499-501, relying on O’Connor v. Village Green Owners Assn., supra, 33 Cal.3d at p. 796 [“association performs all the customary business functions which in the traditional landlord-tenant relationship rest on the landlord’s shoulders”] and White v. Cox, supra, 17 Cal.App.3d at p. 830 [association, as management body over which individual owner has no effective control, may be sued for negligence in maintaining sprinkler].)
More recently, in Nahrstedt v. Lakeside Village Condominium Assn.(1994) 8 Cal.4th 361, 375 [33 Cal.Rptr.2d 63, 878 P.2d 1275] (Nahrstedt), we confronted the question, “When restrictions limiting the use of property within a common interest development satisfy the requirements of covenants running with the land or of equitable servitudes, what standard or test governs their enforceability?” [FN. 7]
[4] In Nahrstedt, an owner of a condominium unit who had three cats sued the community association, its officers and two of its employees for declaratory relief, seeking to prevent the defendants from enforcing against[263]her a prohibition on keeping pets that was contained in the community association’s recorded CC&R’s. In resolving the dispute, we distilled from numerous authorities the principle that “[a]n equitable servitude will be enforced unless it violates public policy; it bears no rational relationship to the protection, preservation, operation or purpose of the affected land; or it otherwise imposes burdens on the affected land that are so disproportionate to the restriction’s beneficial effects that the restriction should not be enforced.” (Nahrstedt, supra, 8 Cal.4th at p. 382.) Applying this principle, and noting that a common interest development’s recorded use restrictions are “enforceable equitable servitudes, unless unreasonable” (Civ. Code, § 1354, subd. (a)), we held that “such restrictions should be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit” (Nahrstedt, supra, at p. 382). (See also Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 349 [47 Cal.Rptr.2d 898, 906 P.2d 1314] [previously recorded restriction on property use in common plan for ownership of subdivision property enforceable even if not cited in deed at time of sale].)
In deciding Nahrstedt, we noted that ownership of a unit in a common interest development ordinarily “entails mandatory membership in an owners association, which, through an elected board of directors, is empowered to enforce any use restrictions contained in the project’s declaration or master deed and to enact new rules governing the use and occupancy of property within the project.” (Nahrstedt, supra, 8 Cal.4th at p. 373, citing Cal. Condominium and Planned Development Practice (Cont.Ed.Bar 1984) § 1.7, p. 13; Note, Community Association Use Restrictions: Applying the Business Judgment Doctrine (1988) 64 Chi.-Kent L.Rev. 653; Natelson, Law of Property Owners Associations (1989) § 3.2.2, p. 71 et seq.) “Because of its considerable power in managing and regulating a common interest development,” we observed, “the governing board of an owners association must guard against the potential for the abuse of that power.” (Nahrstedt, supra, at pp. 373-374, fn. omitted.) We also noted that a community association’s governing board’s power to regulate “pertains to a ‘wide spectrum of activities,’ such as the volume of playing music, hours of social gatherings, use of patio furniture and barbecues, and rental of units.” (Id.at p. 374, [FN. 6])
We declared in Nahrstedt that, “when an association determines that a unit owner has violated a use restriction, the association must do so in good faith, not in an arbitrary or capricious manner, and its enforcement procedures must be fair and applied uniformly.” (Nahrstedt, supra, 8 Cal.4th at p. 383,[264]citing Ironwood Owners Assn. IX v. Solomon(1986) 178 Cal.App.3d 766, 772 [224 Cal.Rptr. 18]; Cohen v. Kite Hill Community Assn.(1983) 142 Cal.App.3d 642, 650 [191 Cal.Rptr. 209].) Nevertheless, we stated, “Generally, courts will uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with public policy.” (Nahrstedt, supra, at p. 374, citing Natelson, Consent, Coercion, and “Reasonableness” in Private Law: The Special Case of the Property Owners Association(1990) 51 Ohio State L.J. 41, 43.)
The plaintiff in this case, like the plaintiff in Nahrstedt, owns a unit in a common interest development and disagrees with a particular aspect of the development’s overall governance as it has impacted her. Whereas the restriction at issue in Nahrstedt (a ban on pets), however, was promulgated at the development’s inception and enshrined in its founding CC&R’s, the decision plaintiff challenges in this case (the choice of secondary over primary termite treatment) was promulgated by the Association’s Board long after the Development’s inception and after plaintiff had acquired her unit. Our holding in Nahrstedt, which established the standard for judicial review of recorded use restrictions that satisfy the requirements of covenants running with the land or equitable servitudes (see Nahrstedt, supra, 8 Cal.4th at p. 375), therefore, does not directly govern this case, which concerns the standard for judicial review of discretionary economic decisions made by the governing boards of community associations.
In Nahrstedt, moreover, some of our reasoning arguably suggested a distinction between originating CC&R’s and subsequently promulgated use restrictions. Specifically, we reasoned in Nahrstedt that giving deference to a development’s originating CC&R’s “protects the general expectations of condominium owners ‘that restrictions in place at the time they purchase their units will be enforceable.’ ” (Nahrstedt, supra, 8 Cal.4th at p. 377, quoting Note, Judicial Review of Condominium Rulemaking (1981) 94 Harv. L.Rev. 647, 653.) Thus, our conclusion that judicial review of a common interest development’s founding CC&R’s should proceed under a deferential standard was, as plaintiff points out, at least partly derived from our understanding (invoked there by way of contrast) that the factors justifying such deference will not necessarily be present when a court considers subsequent, unrecorded community association board decisions. (See Nahrstedt, supra, at pp. 376-377, discussing Hidden Harbour Estates v. Basso (Fla.Dist.Ct.App. 1981) 393 So.2d 637, 639-640.)
[1d] Nevertheless, having reviewed the record in this case, and in light of the foregoing authorities, we conclude that the Board’s decision here to[265]use secondary, rather than primary, treatment in addressing the Development’s termite problem, a matter entrusted to its discretion under the Declaration and Civil Code section 1364, falls within Nahrstedt‘s pronouncement that “Generally, courts will uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with public policy.” (Nahrstedt, supra, 8 Cal.4th at p. 374.) Moreover, our deferring to the Board’s discretion in this matter, which, as previously noted, is broadly conferred in the Development’s CC&R’s, is consistent with Nahrstedt‘s holding that CC&R’s “should be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.” (Id. at p. 382.)
Here, the Board exercised discretion clearly within the scope of its authority under the Declaration and governing statutes to select among means for discharging its obligation to maintain and repair the Development’s common areas occasioned by the presence of wood-destroying pests or organisms. The trial court found that the Board acted upon reasonable investigation, in good faith, and in a manner the Board believed was in the best interests of the Association and its members. (See generally, Nahrstedt, supra, 8 Cal.4th at p. 374; Frances T., supra, 42 Cal.3d at pp. 512-514 [association’s refusal to install lighting breached no contractual or fiduciary duties]; Hannula v. Hacienda Homes, supra, 34 Cal.2d at p. 447 [“refusal to approve plans must be a reasonable determination made in good faith”].)
Contrary to the Court of Appeal, we conclude the trial court was correct to defer to the Board’s decision. We hold that, where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.
The foregoing conclusion is consistent with our previous pronouncements, as reviewed above, and also with those of California courts, generally, respecting various aspects of association decisionmaking. (See Pinsker v. Pacific Coast Society of Orthodontists(1974) 12 Cal.3d 541, 550 [116 Cal.Rptr. 245, 526 P.2d 253] [holding “whenever a private association is legally required to refrain from arbitrary action, the association’s action must be substantively rational and procedurally fair”]; Ironwood Owners Assn. IX[266]v. Solomon, supra, 178 Cal.App.3d at p. 772 [holding homeowners association seeking to enforce CC&R’s and compel act by member owner must “show that it has followed its own standards and procedures prior to pursuing such a remedy, that those procedures were fair and reasonable and that its substantive decision was made in good faith, and is reasonable, not arbitrary or capricious”]; Cohen v. Kite Hill Community Assn., supra, 142 Cal.App.3d at p. 650 [noting “a settled rule of law that homeowners associations must exercise their authority to approve or disapprove an individual homeowner’s construction or improvement plans in conformity with the declaration of covenants and restrictions, and in good faith”]; Laguna Royale Owners Assn. v. Darger (1981) 119 Cal.App.3d 670, 683-684 [174 Cal.Rptr. 136] [in purporting to test “reasonableness” of owners association’s refusal to permit transfer of interest, court considered “whether the reason for withholding approval is rationally related to the protection, preservation or proper operation of the property and the purposes of the Association as set forth in its governing instruments” and “whether the power was exercised in a fair and nondiscriminatory manner”].) [FN. 8]
Our conclusion also accords with our recognition in Frances T. that the relationship between the individual owners and the managing association of a common interest development is complex. (Frances T., supra, 42 Cal.3d at pp. 507-509; see also Duffey v. Superior Court, supra, 3 Cal.App.4th at pp. 428-429 [noting courts “analyze homeowner associations in different ways, depending on the function the association is fulfilling under the facts of each case” and citing examples];Laguna Publishing Co. v. Golden Rain Foundation(1982) 131 Cal.App.3d 816, 844 [182 Cal.Rptr. 813]; O’Connor v. Village Green Owners Assn., supra, 33 Cal.3d at p. 796; Beehan v. Lido Isle Community Assn., supra, 70 Cal.App.3d at pp. 865-867.) On the one hand, each individual owner has an economic interest in the proper business management of the development as a whole for the sake of maximizing the value of his or her investment. In this aspect, the relationship between homeowner and association is somewhat analogous to that between shareholder and corporation. On the other hand, each individual owner, at least while residing in the development, has a personal, not strictly economic,[267]interest in the appropriate management of the development for the sake of maintaining its security against criminal conduct and other foreseeable risks of physical injury. In this aspect, the relationship between owner and association is somewhat analogous to that between tenant and landlord. (See generally, Frances T., supra, 42 Cal.3d at p. 507 [business judgment rule “applies to parties (particularly shareholders and creditors) to whom the directors owe a fiduciary obligation,” but “does not abrogate the common law duty which every person owes to others-that is, a duty to refrain from conduct that imposes an unreasonable risk of injury on third parties”].)
Relying on Frances T., the Court of Appeal held that a landlord-like common law duty required the Association, in discharging its responsibility to maintain and repair the common areas occasioned by the presence of termites, to exercise reasonable care in order to protect plaintiff’s unit from undue damage. [3b] As noted, “It is now well established that California law requires landowners to maintain land in their possession and control in a reasonably safe condition. [Citations.] In the case of a landlord, this general duty of maintenance, which is owed to tenants and patrons, has been held to include the duty to take reasonable steps to secure common areas against foreseeable criminal acts of third parties that are likely to occur in the absence of such precautionary measures.” (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 674 [25 Cal.Rptr.2d 137, 863 P.2d 207], citing, inter alia, Frances T.,supra, 42 Cal.3d at pp. 499-501.) [1e] Contrary to the Court of Appeal, however, we do not believe this case implicates such duties. Frances T. involved a common interest development resident who suffered ” ‘physical injury, not pecuniary harm ….’ ” (Frances T., supra, 42 Cal.3d at p. 505, quoting United States Liab. Ins. Co. v. Haidinger-Hayes, Inc., supra, 1 Cal.3d at p. 595; see also id. at p. 507, fn. 14.) Plaintiff here, by contrast, has not resided in the Development since the time that significant termite infestation was discovered, and she alleges neither a failure by the Association to maintain the common areas in a reasonably safe condition, nor knowledge on the Board’s part of any unreasonable risk of physical injury stemming from its failure to do so. Plaintiff alleges simply that the Association failed to effect necessary pest control and repairs, thereby causing her pecuniary damages, including diminution in the value of her unit. Accordingly, Frances T. is inapplicable.
Plaintiff warns that judicial deference to the Board’s decision in this case would not be appropriate, lest every community association be free to do as little or as much as it pleases in satisfying its obligations to its members. We do not agree. Our respecting the Association’s discretion, under this Declaration, to choose among modes of termite treatment does not foreclose the[268]possibility that more restrictive provisions relating to the same or other topics might be “otherwise provided in the declaration[s]” (Civ. Code, § 1364, subd. (b)(1)) of other common interest developments. As discussed, we have before us today a declaration constituting a general scheme for maintenance, protection and enhancement of value of the Development, one that entrusts to the Association the management, maintenance and preservation of the Development’s common areas and confers on the Board the power and authority to maintain and repair those areas.
Thus, the Association’s obligation at issue in this case is broadly cast, plainly conferring on the Association the discretion to select, as it did, among available means for addressing the Development’s termite infestation. Under the circumstances, our respecting that discretion obviously does not foreclose community association governance provisions that, within the bounds of the law, might more narrowly circumscribe association or board discretion.
Citing Restatement Third of Property, Servitudes, Tentative Draft No. 7, fn. 9 plaintiff suggests that deference to community association discretion will undermine individual owners’ previously discussed right, under Civil Code section 1354 and Nahrstedt, supra, 8 Cal.4th at page 382, to enforce recorded CC&R’s as equitable servitudes, but we think not. [5] “Under well-accepted principles of condominium law, a homeowner can sue the association for damages and an injunction to compel the association to enforce the provisions of the declaration. [Citation.] More importantly here, the homeowner can sue directly to enforce the declaration.” (Posey v. Leavitt (1991) 229 Cal.App.3d 1236, 1246-1247 [280 Cal.Rptr. 568], citing Cohen[269]v.Kite Hill Community Assn., supra, 142 Cal.App.3d 642.) Nothing we say here departs from those principles.
[1f] Finally, plaintiff contends a rule of judicial deference will insulate community association boards’ decisions from judicial review. We disagree. As illustrated by Fountain Valley Chateau Blanc Homeowner’s Assn. v. Department of Veterans Affairs(1998) 67 Cal.App.4th 743, 754-755 [79 Cal.Rptr.2d 248] (Fountain Valley), judicial oversight affords significant protection against overreaching by such boards.
In Fountain Valley, a homeowners association, threatening litigation against an elderly homeowner with Hodgkin’s disease, gained access to the interior of his residence and demanded he remove a number of personal items, including books and papers not constituting “standard reading material,” claiming the items posed a fire hazard. (Fountain Valley, supra, 67 Cal.App.4th at p. 748.) The homeowner settled the original complaint (id. at p. 746), but cross-complained for violation of privacy, trespass, negligence and breach of contract (id. at p. 748). The jury returned a verdict in his favor, finding specifically that the association had acted unreasonably. (Id. at p. 749.)
Putting aside the question whether the jury, rather than the court, should have determined the ultimate question of the reasonableness vel non of the association’s actions, the Court of Appeal held that, in light of the operative facts found by the jury, it was “virtually impossible” to say the association had acted reasonably. (Fountain Valley, supra, 67 Cal.App.4th at p. 754.) The city fire department had found no fire hazard, and the association “did not have a good faith, albeit mistaken, belief in that danger.” (Ibid.) In the absence of such good faith belief, the court determined the jury’s verdict must stand (id. at p. 756), thus impliedly finding no basis for judicial deference to the association’s decision.
Plaintiff suggests that our previous pronouncements establish that when, as here, a community association is charged generally with maintaining the common areas, any member of the association may obtain judicial review of the reasonableness of its choice of means for doing so. To the contrary, in Nahrstedt we emphasized that “anyone who buys a unit in a common interest development with knowledge of its owners association’s discretionary power accepts ‘the risk that the power may be used in a way that benefits the commonality but harms the individual.’”(Nahrstedt, supra, 8 Cal.4th at p. 374, quoting Natelson, Consent, Coercion, and “Reasonableness” in Private[270]Law: The Special Case of the Property Owners Association, supra, 51 Ohio State L.J. at p. 67.) [FN. 10]
Nor did we in Nahrstedt impose on community associations strict liability for the consequences of their ordinary discretionary economic decisions. As the Association points out, unlike the categorical ban on pets at issue in Nahrstedt-which arguably is either valid or not-the Declaration here, in assigning the Association a duty to maintain and repair the common areas, does not specify how the Association is to act, just that it should. Neither the Declaration nor Civil Code section 1364 reasonably can be construed to mandate any particular mode of termite treatment.
Still less do the governing provisions require that the Association render the Development constantly or absolutely termite-free. Plainly, we must reject any per se rule “requiring a condominium association and its individual members to indemnify any individual homeowner for any reduction in value to an individual unit caused by damage…. Under this theory the association and individual members would not only have the duty to repair as required by the CC&Rs, but the responsibility to reimburse an individual homeowner for the diminution in value of such unit regardless if the repairs had been made or the success of such repairs.” (Kaye v. Mount La Jolla Homeowners Assn.(1988) 204 Cal.App.3d 1476, 1487 [252 Cal.Rptr. 67] [disapproving cause of action for lateral and subjacent support based on association’s failure, despite efforts, to remedy subsidence problem].)
The formulation we have articulated affords homeowners, community associations, courts and advocates a clear standard for judicial review of discretionary economic decisions by community association boards, mandating a degree of deference to the latter’s business judgments sufficient to discourage meritless litigation, yet at the same time without either eviscerating the long-established duty to guard against unreasonable risks to residents’ personal safety owed by associations that “function as a landlord in maintaining the common areas” (Frances T., supra, 42 Cal.3d at p. 499) or modifying the enforceability of a common interest development’s CC&R’s (Civ. Code, § 1354, subd. (a); Nahrstedt, supra, 8 Cal.4th at p. 374).
Common sense suggests that judicial deference in such cases as this is appropriate, in view of the relative competence, over that of courts, possessed by owners and directors of common interest developments to make[271]the detailed and peculiar economic decisions necessary in the maintenance of those developments. A deferential standard will, by minimizing the likelihood of unproductive litigation over their governing associations’ discretionary economic decisions, foster stability, certainty and predictability in the governance and management of common interest developments. Beneficial corollaries include enhancement of the incentives for essential voluntary owner participation in common interest development governance and conservation of scarce judicial resources.
Disposition
For the foregoing reasons, the judgment of the Court of Appeal is reversed.
George, C. J., Mosk, J., Kennard, J., Baxter, J., Chin, J., and Brown, J., concurred.
FN *. Retired judge of the San Diego Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
FN 1. In 1985, the Legislature enacted the Davis-Stirling Common Interest Development Act (Davis-Stirling Act) as division 2, part 4, title 6 of the Civil Code, “Common Interest Developments” (Civ. Code, §§ 1350-1376; Stats. 1985, ch. 874, § 14, pp. 2774-2787), which encompasses community apartment projects, condominium projects, planned developments and stock cooperatives (Civ. Code, § 1351, subd. (c)). “A common interest development shall be managed by an association which may be incorporated or unincorporated. The association may be referred to as a community association.” (Civ. Code, § 1363, subd. (a).)
FN 2. The Development was built, and its governing declaration of restrictions recorded, in 1971. In 1973 Lamden and her husband bought unit 375, one of 42 units in the complex’s largest building. Until 1977 the Lamdens used their unit only as a rental. From 1977 until 1988 they lived in the unit; since 1988 the unit has again been used only as a rental.
FN 3. As discussed more fully post, “In a community apartment project, condominium project, or stock cooperative … unless otherwise provided in the declaration, the association is responsible for the repair and maintenance of the common area occasioned by the presence of wood-destroying pests or organisms.” (Civ. Code, § 1364, subd. (b)(1).)
FN 4. The Declaration, which contains the Development’s governing covenants, conditions, and restrictions (CC&R’s), states that the Association was to provide for the management, maintenance, repair and preservation of the complex’s common areas for the enhancement of the value of the project and each unit and for the benefit of the owners.
FN 5. Civil Code section 1354, subdivision (a) provides: “The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of separate interests in the development. Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both.”
FN 6. The parties do not dispute that the component of the common law business judgment rule calling for deference to corporate decisions survives the Legislature’s codification, in section 7231, of the component shielding individual directors from liability. (See also Lee v. Interinsurance Exchange, supra, 50 Cal.App.4th at p. 714; see generally, California Assn. of Health Facilities v. Department of Health Services(1997) 16 Cal.4th 284, 297 [65 Cal.Rptr.2d 872, 940 P.2d 323] [unless expressly provided, statutes should not be interpreted to alter the common law]; Rojo v. Kliger (1990) 52 Cal.3d 65, 80 [276 Cal.Rptr. 130, 801 P.2d 373] [“statutes do not supplant the common law unless it appears that the Legislature intended to cover the entire subject”].)
FN 7. Our opinion in Nahrstedt also contains extensive background discussion, which need not be reproduced here. Nahrstedt‘s background materials discuss the origin and development of condominiums, cooperatives and planned unit developments as widely accepted forms of real property ownership (Nahrstedt, supra, 8 Cal.4th at pp. 370-375, citing numerous authorities); California’s statutory scheme governing condominiums and other common interest developments (id. at pp. 377-379 [describing the Davis-Stirling Act]); and general property law principles respecting equitable servitudes and their enforcement (Nahrstedt, supra, at pp. 380-382).
FN 8. Courts in other jurisdictions have adopted similarly deferential rules. (See, e.g., Levandusky v. One Fifth Ave. Apt. Corp., supra, 75 N.Y.2d at p. 538 [554 N.Y.S.2d at p. 812, 553 N.E.2d at pp. 1321-1322] [comparing benefits of a “reasonableness” standard with those of a “business judgment rule” and holding that, when “the board acts for the purposes of the cooperative, within the scope of its authority and in good faith, courts will not substitute their judgment for the board’s”]; see also authorities cited there and id. at p. 545 [554 N.Y.S.2d at p. 816, 553 N.E.2d at p. 1326] (conc. opn. of Titone, J.) [standard analogous to business judgment rule is appropriate where “the challenged action was, in essence, a business judgment, i.e., a choice between competing and equally valid economic options” (italics omitted)].)
FN 9. The Restatement tentative draft proposes that “In addition to duties imposed by statute and the governing documents, the association has the following duties to the members of the common interest community: [] (a) to use ordinary care and prudence in managing the property and financial affairs of the community that are subject to its control.” (Rest.3d Property, Servitudes (Tent. Draft No. 7, Apr. 15, 1998) ch. 6, § 6.13, p. 325.) “The business judgment rule is not adopted, because the fit between community associations and other types of corporations is not very close, and it provides too little protection against careless or risky management of community property and financial affairs.” (Id., com. b at p. 330.) It is not clear to what extent the Restatement tentative draft supports plaintiff’s position. As the Association points out, a “member challenging an action of the association under this section has the burden of proving a breach of duty by the association” and, when the action is one within association discretion, “the additional burden of proving that the breach has caused, or threatens to cause, injury to the member individually or to the interests of the common interest community.” (Rest.3d Property (Tent. Draft No. 7),supra, § 6.13, p. 325.) Depending upon how it is interpreted, such a standard might be inconsistent with the standard we announced in Nahrstedt, viz., that a use restriction is enforceable “not by reference to facts that are specific to the objecting homeowner, but by reference to the common interest development as a whole.” (Nahrstedt, supra, 8 Cal.4th at p. 386, italics in original.)
FN 10. In this connection we note that, insofar as the record discloses, plaintiff is the only condominium owner who has challenged the Association’s decision not to fumigate her building. To permit one owner to impose her will on all others and in contravention of the governing board’s good faith decision would turn the principle of benefit to ” ‘the commonality but harm [to] the individual’ ” (Nahrstedt, supra, 8 Cal.4th at p. 374) on its head.
An association’s board of directors generally has the power to “delegate the management of the activities of the [association] to any person or persons, management company, or committee however composed, provided that the activities and affairs of the [association] shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.” (Corp. Code § 7210.) Because of the limitations placed on the board’s ability to conduct association business (i.e., the prohibition on actions without a meeting), as well as the fact that directors serve in the capacity of unpaid volunteers, a large portion of the board’s duties, powers and authority in managing the association are often delegated to other parties such as the association’s managing agent or committees of the association that assist with the association’s day-to-day operations.
Non-Delegable Duties There are certain duties and powers of the board which may not be delegated to other persons, either as a result of an explicit legal requirement and/or in order to avoid liability. Those non-delegable duties generally include:
Approving settlement agreements on behalf of the association. (Elnekave v. Via Dolce HOA (2006) 142 Cal. App. 4th 1193.)
Delegating “Items of Business” The “Common Interest Development Open Meeting Act” (“Open Meeting Act”) is codified at Civil Code Sections 4900 through 4955. One of the Open Meeting Act’s provisions prohibits HOA boards from “tak[ing] action on any item of business outside of a board meeting.” (Civ. Code § 4910(a) (Emphasis added).) Because of the various notice requirements applicable to board meetings, this “no action without a meeting” requirement may inhibit the board’s ability to act on time-sensitive matters or other issues that arise between the board’s scheduled meetings.
The term “item of business” used in Civil Code Section 4910 is significant. “Item of business” is defined as:
“…any action within the authority of the board, except those actions that the board has validly delegated to any other person or persons, managing agent, officer of the association, or committee of the board comprising less than a quorum of the board.” (Civ. Code § 4155(Emphasis added).)
[Delegating Authority; Settlement] A decision to enter into settlement may be invalidated where it was not made in cooperation with the HOA’s Directors.
Pariser & Pariser and Wayne D. Pariser for Plaintiffs and Appellants.
Procter, McCarthy & Slaughter, Barry J. Reagan, Chandra A. Beaton and Gabriele Mezger-Lashly for Defendant and Appellant.
OPINION
RUBIN, J.-
Defendant Via Dolce Homeowners Association appeals from the judgment entered to enforce a settlement agreement with plaintiffs Israel and [1195] Sara Elnekave (Code Civ. Proc., § 664.6) in this action for water and mold damage to the Elnekaves’ condominium. Because only the association’s insurer and a third party representative agreed to the settlement, and not a member of its corporate board or a corporate officer, we reverse. The Elnekaves have cross-appealed, asking that if we reverse the judgment, we also reverse the concomitant order dismissing their complaint. We also reverse the dismissal order, and the Elnekaves’ action is restored.
FACTS AND PROCEDURAL HISTORY
Israel and Sara Elnekave owned a unit in a Marina Del Rey condominium complex. Their unit suffered mold damage from a water leak, forcing them to pay for extensive repairs. The Elnekaves sued the Lees, their neighbors who owned an adjoining unit, and Via Dolce Homeowners Association (HOA), the homeowners association for the condominium complex, claiming that the Lees and the HOA were responsible for the damage. [FN. 1]
At a September 8, 2004, mandatory settlement conference, it appeared that an oral settlement was reached and put on the record before the court. Attorneys for each of the parties were present, but Israel Elnekave was the only party to attend, purporting to consent for himself and on behalf of his wife. Settling on behalf of the HOA was a representative from its insurer — State Farm — and Cheryl Stites, an employee of a property management company hired by the HOA to manage the condominium complex. Stites told the court she had authority to settle for the HOA. The Lees were also insured by State Farm, and the State Farm representative appearing for the HOA said he was able to agree to the settlement on their behalf.
The agreement, as described by the court, called for State Farm to pay the Elnekaves $65,000 on behalf of the HOA and $60,000 on behalf of the Lees. The action would be dismissed and mutual releases would be exchanged. The Elnekaves believed the HOA had been harassing them about the repair work, threatening to inspect the repairs and perhaps find violations of buildings codes or the condominium’s covenants, codes and restrictions (CC&R’s). According to the court, the settlement meant “that’s the end of the lawsuits, that’s the end of demanding damages or monetary fines and so forth in regard [1196] to the mold problem and the construction that was done to repair the apartment because of the mold damage. It has nothing to do with any other lawsuits not dealing with the apartment and the mold problem. It has nothing to do with anything in future construction or change of the apartment or anything along that line. It encapsulates this particular issue with the mold, the displacement of the plaintiff and the repair to his condominium . . . .” Israel Elnekave told the court, “I just want to reiterate that I don’t want to be harassed anymore in any way, shape or form with this work. Everything is over. I don’t want to be harassed anymore.” The court replied, “That’s part of the settlement agreement, sir.”
Later attempts to reduce the oral agreement to writing foundered when counsel for the HOA and the Elnekaves could not agree on the scope of the release regarding enforcement of the CC&R’s for any problems with the Elnekaves’ repair work. Even though the draft prepared by the HOA appeared to release any HOA enforcement actionsby the HOAfor work done up to the date of the settlement conference, the Elnekaves wanted the agreement to make clear that the HOA would not pursue any CC&R enforcement actions on behalf of owners of other units in the complex. The Elnekaves brought a motion to enforce the settlement pursuant to Code of Civil Procedure section 664.6. [FN. 2] The HOA opposed the motion on two main grounds: First, it never intended to waive its right to enforcement actions based on a steam shower the Elnekaves added in place of their old shower; and second, Stites was merely an employee of an outside property management firm, and, despite her self-asserted authority to settle, could not agree to settle in place of a member of the HOA’s board of directors. In the Elnekaves’ reply brief, they argued that Stites had the actual authority to settle. Even if she did not, State Farm’s consent to the settlement was sufficient to bind the HOA, they contended. [FN. 3] The trial court denied the motion because the settlement was never intended to apply to the steam shower, but, out of fairness to the Lees, who were ready and willing to settle the matter, ordered the HOA and the Elnekaves to work out their differences. An order to show cause regarding dismissal of the action as part of an eventual settlement was continued to February 3, 2005. [1197]
The order to show cause regarding dismissal was eventually heard on April 1, 2005. Present on behalf of the HOA this time was a member of its board of directors, along with Stites. At the start of the hearing, the court said it had just held an in chambers conference with the parties where it issued a tentative ruling to adopt the September 2004 settlement. Counsel for the HOA argued that it had been trying for some time to determine whether the repair work performed by the Elnekaves, including the steam shower, had been performed by licensed contractors and met local building code standards, as required by the CC&R’s. The HOA lawyer said the Elnekaves’ unit had flooded twice, once as recently as January 2005. One leak was caused by unapproved construction work, the lawyer said. According to HOA’s lawyer, the HOA and Stites had been unaware of all the work done by the Elnekaves and never intended to waive enforcement of the CC&R’s as to any and all work, just as to the mold remediation repairs. The Elnekaves’ lawyer told the court that the purpose of the settlement was to put an end to the entire dispute, including the HOA’s threats of enforcement actions, and said that the HOA had twice inspected the Elnekaves’ unit.
The trial court resolved the dispute by finding that a “good faith settlement” was reached on September 8, 2004, with the HOA waiving enforcement actions for work done in the Elnekaves’ unit up to that date, excluding the steam shower, and matters that the Elnekaves intentionally misrepresented or failed to disclose to the HOA. The court entered an order to that effect, finding that the settlement was in good faith pursuant to section 877.6. It also ordered that the case be dismissed.
On appeal, the HOA contends: (1) the trial court purported to act under section 877.6, which provides for findings that a settlement was in good faith for purposes of settlements with one of several joint tortfeasors or co-obligors. No such motion was made, and that statute was inapplicable here, leading the HOA to conclude that the trial court lacked jurisdiction to enforce the settlement; (2) because Sara Elnekave was not present, and because Stites was not a proper representative of the HOA corporate entity, not all parties were present when the settlement was reached, making it unenforceable under section 664.6; and (3) the parties did not agree as to all material terms. [1198]
STANDARD OF REVIEW
In a statutory settlement proceeding, we review the trial court’s determination of factual matters for substantial evidence. To the extent we engage in the proper interpretation of section 664.6, however, we exercise our independent review. (Gauss v. GAF Corp. (2002) 103 Cal.App.4th 1110, 1116 (Gauss).)
DISCUSSION
[1] Section 664.6 provides, in relevant part: “If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.” The term “parties to the litigation” has been strictly construed to mean the parties themselves, not their lawyers or other agents. (See Gauss, supra, 103 Cal.App.4th at pp. 1117-1119, and cases cited therein.) The reason for this rule was stated in Levy v. Superior Court (1995) 10 Cal.4th 578 (Levy): “The litigants’ direct participation tends to ensure that the settlement is the result of their mature reflection and deliberate assent. This protects the parties against hasty and improvident settlement agreements by impressing upon them the seriousness and finality of the decision to settle, and minimizes the possibility of conflicting interpretations of the settlement. It also protects parties from impairment of their substantial rights without their knowledge and consent.” (Id. at p. 585, fn. and citations omitted.)
In Gauss, supra, 103 Cal.App.4th 1110, the defendant and other corporations expressly authorized another corporation (the agency) to handle the defense of, and settle, claims by asbestosis plaintiffs. That agency settled an action against GAF, but GAF refused to pay when a dispute arose over its settlement obligations. The trial court eventually granted the plaintiff’s section 664.6 motion, but GAF appealed, contending it alone had the authority to settle for purposes of such a motion. The appellate court agreed, holding that despite GAF’s express authorization of the agency’s right to settle, section 664.6 required an agreement by a corporate officer. Citing to Levy, supra, 10 Cal.4th at page 583, the Gauss court noted that the term “party” in section 664.6 means the specific person or entity by or against whom an action was brought. (Gauss, supra, at pp. 1118-1119.)[1199]
Relying on Gauss, the HOA contends in its opening brief, as it did below, that Stites was not its proper representative under section 664.6 because she was no more than an employee of a property management company hired by the HOA. The Elnekaves’ brief does not address this issue at all, and we therefore deem it waived. (Landry v. Berryessa Union School Dist.(1995) 39 Cal.App.4th 691, 699-700 (Landry).) Instead, the Elnekaves rely on the alternative ground they raised below — that the representative of HOA’s insurer sufficed to bind the HOA under section 664.6. The only authority cited for this proposition is Fiege v. Cook (2004) 125 Cal.App.4th 1350 (Fiege).
The plaintiff, Fiege, was injured in an automobile collision and sued three persons for his injuries. Fiege accepted settlement offers from the defendants’ insurers, but later tried to avoid the settlement. The defendants sought and were granted a motion to enforce the settlement under section 664.6. Fiege contended on appeal that the defendants themselves had to be present and consent to make the settlement enforceable under section 664.6, and that an agreement by their insurers was not sufficient. The appellate court disagreed. Because the defendants’ insurance policies expressly gave the insurers the right to settle without the defendants’ consent, and because the settlement within policy limits did not prejudice the defendants’ substantial rights, the court held that section 664.6 had been satisfied. (Fiege, supra, 125 Cal.App.4th at pp. 1354-1355.)
[2] As the HOA points out, its liability policy is not in the record and there is no evidence that it gave State Farm the right to settle without the HOA’s consent. Also, unlike Fiege, the settlement here did prejudice the HOA’s rights separate from the payment by its insurer, because the settlement limited its ability to enforce the CC&R’s for noncompliance by the Elnekaves. Therefore, Fiege is not applicable. We alternatively hold that the Elnekaves have waived this issue by failing to discuss the facts or holding of Fiegeor to analyze that holding in light of the appellate record. (Landry, supra, 39 Cal.App.4th at pp. 699-700.) [FN. 4] [1200]
The Elnekaves contend that the monetary portion of the settlement, calling for the payment of money by the HOA’s insurer, is separately enforceable under Fiege, supra,125 Cal.App.4th 1350. We disagree. Under this contention, we would be peeling off one portion of the settlement, leaving the fate of the other — the enforceability of the CCRs — in limbo. Nothing in Fiege suggests that part of what was intended as a global settlement may be enforced under section 664.6, and we decline to adopt such a rule. [FN. 5]
Finally, the Elnekaves contend that the HOA waived its objections concerning HOA’s failure to have a proper representative at the September 2004 settlement conference by not raising the issue at the April 2005 hearing on the order to show cause, or in response to the trial court’s proposed order enforcing the settlement. We reject that contention for two reasons. First, the HOA raised the issue as to Stites in its opposition to the original section 664.6 motion, and the Elnekaves raised the issue of the insurer’s presence in their reply brief, meaning that these issues were before the court. Second, the waiver rule is designed to allow the trial court the opportunity to correct an error before ruling. (In re Carrie W.(2003) 110 Cal.App.4th 746, 755.) Because the defect — the failure to have a proper representative of the HOA present — took place seven months earlier and could not have been remedied at a later time, the waiver rule is inapplicable.
Because we hold that the settlement was unenforceable under section 664.6 and reverse the judgment, we also grant the Elnekaves’ cross-appeal and reverse the order dismissing their complaint. [1201]
DISPOSITION
For the reasons set forth above, the judgment enforcing the purported settlement of September 8, 2004, pursuant to section 664.6 is reversed, as is the trial court’s order dismissing the Elnekaves’ complaint. Each party to bear its own costs on appeal.
Cooper, P. J., and Boland, J., concurred.
FN 1. The complaint is not in the record. Our description of the complaint and the underlying dispute is based on statements in the parties’ appellate briefs.
FN 2. All further section references are to the Code of Civil Procedure.
FN 3. As part of the Elnekaves’ reply brief, Sara Elnekave submitted a signed declaration where she expressly adopted and consented to the settlement. We express no opinion on the legal effect of this declaration in future proceedings, except to observe that for section 664.6 purposes one spouse’s signature or acquiescence may be insufficient to bind the other spouse. (SeeCortez v. Kenneally(1996) 44 Cal.App.4th 523, 530.)
FN 4. Because we hold that the settlement was unenforceable on this ground, we need not reach the other issues raised by the parties. We also make clear that our decision in no way affects the Elnekaves’ ability to enforce the settlement by alternative means, such as a summary judgment motion, separate suit in equity, or amendment to the complaint. (Gauss,supra, 103 Cal.App.4th at p. 1122.) Our decision should also not be construed one way or the other as affecting the merits of any arguments the Elnekaves may raise concerning principles of agency, be they actual, ostensible, or apparent, as among State Farm, Stites, and the HOA.
We also share the undoubted frustration of the trial court with this case being remanded for further proceedings. This settlement was reached following a mandatory settlement conference. California Rules of Court rule 222 requires that persons with full authority to settle must personally attend the settlement conference, as must anyone else whose “consent” is necessary. Failure to comply with rule 222 may result in the imposition of sanctions under rule 227. (Barrientos v. City of Los Angeles (1994) 30 Cal.App.4th 63, 71, fn. 7; Sigala v. Anaheim City School Dist. (1993) 15 Cal.App.4th 661, 674.) At oral argument, counsel for the HOA asserted that neither Stites nor the State Farm adjuster had authority to settle at the mandatory settlement conference. Our remand does not preclude the trial judge from consideration of sanctions against the HOA. We express no opinion on whether attorneys fees, including those incurred by the Elnekaves on appeal, is an appropriate component of any sanction award.
FN 5. Of course, section 664.6 does allow for partial settlements, but that was not the intent of the parties in this case.
Unless an association’s bylaws or articles state otherwise, officers are appointed by a majority vote of the board of directors. (Corp. Code § 7213(b).) The appointment/selection of officers by the board is typically performed in an open board meeting immediately following an association’s annual meeting where directors are elected by the membership. The meeting where officers are selected by the board is often defined as an “Organizational Meeting” in association governing documents.
Because officers serve at the pleasure of the board, the board may change officers at any time with our without cause, unless otherwise stated in the association’s governing documents. (See “Officer Removal & Resignation.”)
Open to Membership The appointment/selection of officers does not fall within the matters specified under Civil Code Section 4935 which the board may act upon in executive session. The selection of officers is therefore performed during an open board meeting that members have the right to attend and observe.
Officer Qualifications Unless required by the association’s governing documents, officers are not required to be directors or members of the association. Any qualifications for officers are often found in an association’s bylaws.
Removal
While directors are elected by the membership, officers are generally appointed by the board and thus “serve at the pleasure of the board.” (Corp. Code § 7213(b).) Serving at the pleasure of the board allows for the board to remove or change its officers at any time with or without cause, unless otherwise stated in the association’s governing documents.
Distinct from Removing a Director from the Board Removing a director from an office (i.e., president, secretary, treasurer, etc.) is distinct from removing a director from his seat on the board. (See “Removal & Recall of Directors.”) A director who is removed from his officer position continues to serve on the board and maintains all of his powers and authority as a director.
Resignation An officer may resign at any time upon written notice to the association without prejudice to any rights the association may have under contract with the officer. (Corp. Code § 7213(b).)
Filling Vacancies Unless otherwise provided in an association’s articles or bylaws, a vacancy created by the removal or resignation of an officer is filled by a majority vote of the board. (Corp. Code § 7213(b).)
Parliamentary procedure is a body of rules, ethics and customs used to govern meetings of organizations, legislative bodies, clubs and other deliberative assemblies. As discussed below, a homeowners association’s adherence to a system of parliamentary procedure is a legal requirement solely in the context of membership meetings. (Civ. Code § 5000(a).)
Robert’s Rules of Order The most widely adopted system of parliamentary procedure by private organizations is Robert’s Rules of Order (“Robert’s Rules”). Robert’s Rules was first published in 1876 by U.S. Army Colonel Henry Martyn Robert and is currently in its eleventh edition. Robert’s Rules and related resources may be found online.
Board Meetings & Committee Meetings There is no statutory requirement that an association’s board meetings or committee meetings be conducted in accordance with a system of parliamentary procedure such as Robert’s Rules. Associations typically refrain from doing so in order to avoid onerous and unreasonable formalities (i.e., requiring directors to “obtain the floor” before making motions or speaking). Boards and committees typically utilize more flexible procedures, unless otherwise required by the association’s governing documents.
Membership Meetings Adhering to a system of parliamentary procedure often only becomes a legal necessity in the context of an association’s membership meetings:
“Meetings of the membership of the association shall be conducted in accordance with a recognized system of parliamentary procedure or any parliamentary procedures the association may adopt.” (Civ. Code § 5000(a).)
While there are various systems of parliamentary procedure which may be utilized by an association, Robert’s Rules is the most common.
**NOTE – Various topics categorized under the MEMBER MEETINGS & ELECTIONS area of this website may include references to procedures contained within Robert’s Rules. Those procedures may not apply to an association that uses a different system of parliamentary procedure.
