[Board meetings; Protected Speech & Anti-SLAPP] Statements made at HOA Board meetings are not matters of “public interest” nor “official proceedings” that are entitled to constitutional protection under anti-SLAPP statutes.
Newmeyer & Dillion, James S. Hultz and Uliana A. Kozeychuk for Defendants and Appellants.
The Law Offices of Jeri E. Tabback and Jeri E. Tabback for Plaintiff and Respondent.
OPINION
IKOLA, J. —
Plaintiff Talega Maintenance Corporation (HOA), a homeowners association, sued two developers for construction defects. The developers, who developed the residential community itself, also developed certain trails adjacent to the housing community. The trails were badly damaged during rains and flooding in 2005 and again in 2010, allegedly as a result of construction defects.
The HOA also sued three former employees of the developers. The employees were appointed by the developers to be members of the HOA’s board of directors at various times since 2003.[FN. 1]
The HOA alleges the employee defendants committed fraud, negligence, and breached fiduciary duties in performing their duties as board members. In particular, the HOA contends it is not financially responsible for repairing the trails; the developers are. Yet the developer board members, who comprised a majority of the board, represented that the HOA was responsible and expended HOA funds to investigate and repair the trails.
[726] Defendants filed an anti-SLAPP motion [FN. 2] pursuant to Code of Civil Procedure section 425.16 [FN. 3] to strike the fraud, negligence, and fiduciary duty claims, contending they arise from protected statements made at the HOA board meetings. The trial court denied the motion and defendants appeal from that denial. We affirm.
FACTS
The following facts are taken from the complaint and the declarations filed in connection with the anti-SLAPP motion.
Defendant Talega Associates, LLC, purchased land for what became a 3,900-acre master planned community in San Clemente known as the “Talega Project.” Ultimately, more than 3,500 homes housing more than 9,000 residents were built. Plaintiff is the homeowners association for the Talega Project. Defendant Standard Pacific Corporation (collectively with Talega Associates referred to as Developers) was a “Guest Builder” that purchased unimproved lots and built separate communities within the Talega Project. The complaint alleges the Developers planned and constructed the Prima Deshecha and Cristianitos regional riding and hiking trails (the Trails), which are the trails at issue here. Defendants Patrick Hayes, Jerome Miyahara, and James B. Yates (collectively, Developer Board Members) were employees of Talega Associates who were appointed to represent Talega Associates on the HOA’s board of directors. At all relevant times, the Developer Board Members comprised a majority of the HOA’s board of directors.
In approximately 2005, the Trails suffered a partial slope failure as a result of severe rains. By that time, title to a portion of the damaged property had already transferred to the HOA. The Developer Board Members represented that the HOA was responsible to pay for repairs to the property it owned — the allegedly fraudulent statement — and to that end expended over $500,000 of HOA funds. According to the complaint, however, the Developer Board Members knew, but failed to disclose, that under the relevant controlling documents, the Developers were responsible for the cost of repairs. Further, the Developer Board Members knew, but failed to disclose, that the damages were the result of the Developers’ improper construction of the Trails, as explicitly pointed out to them by agents of Orange County.
In 2010 rains again damaged the Trails. This time, however, the independent board members had formed an executive committee — with no Developer [727] Board Members — that hired its own consultants to investigate the cause of the damages. From the consultants, the independent board members learned for the first time that the Developers were bound forever to provide repairs to the Trails, that the Trails were not actually completed, and that the Trails’ failures were likely the result of construction defects.
The HOA filed suit in September of 2012, alleging causes of action for breach of fiduciary duty, fraud, constructive fraud, construction defect, negligence, and declaratory relief. Each of the defendants filed anti-SLAPP motions targeting the causes of action for breach of fiduciary duty, fraud, constructive fraud, and negligence. At the hearing on the motions the court recognized it was a close call, stating, “I don’t think it’s a slam dunk. It could go either way. And I just want to give it some more thought as to the extent to which it might operate to strike some but not all of the allegations; or whether it is an all or a nothing.” Ultimately, the court denied the motions in their entirety, stating, “[Defendants] failed to establish that any statements were an exercise of free speech. Additionally, [defendants] failed to establish that statements at issue were made before, or in connection with, an official proceeding authorized by law. Moreover, even if the statements were made in a public forum via a [homeowners association] open board meeting, [defendants] have not demonstrated that they involved a matter of sufficient public interest or an exercise of a free speech right.” Defendants timely appealed.
DISCUSSION
I. Legal Principles
Section 425.16, subdivision (b)(1), the anti-SLAPP statute, states, “A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.”
(1) The anti-SLAPP statute “requires the court to engage in a two-step process. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity…. [Citation.] If the court finds such a showing has been made, it then determines whether the plaintiff has demonstrated a probability of prevailing on the claim.” (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67 [124 Cal.Rptr.2d 507, 52 P.3d 685].)
“The sole inquiry under the first prong of the anti-SLAPP statute is whether the plaintiff’s claims arise from protected speech or petitioning [728] activity. [Citation.] Our focus is on the principal thrust or gravamen of the causes of action, i.e., the allegedly wrongful and injury-producing conduct that provides the foundation for the claims. [Citations.] We review the parties’ pleadings, declarations, and other supporting documents at this stage of the analysis only `to determine what conduct is actually being challenged, not to determine whether the conduct is actionable.'” (Castleman v. Sagaser (2013) 216 Cal.App.4th 481, 490-491 [156 Cal.Rptr.3d 492] (Castleman).)
As used in the anti-SLAPP statute, “`act in furtherance of a person’s right of petition or free speech … in connection with a public issue’ includes: (1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law, (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law, (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or on an issue of public interest.” (§ 425.16, subd. (e).)
(2) “An order denying a special motion to strike under section 425.16 is immediately appealable. [Citations.] Our review is de novo; we engage in the same two-step process as the trial court to determine if the parties have satisfied their respective burdens. [Citations.] If the defendant fails to show that the lawsuit arises from protected activity, we affirm the trial court’s ruling and need not address the merits of the case under the second prong of the statute.” (Castleman, supra, 216 Cal.App.4th at p. 490.)
II. The Constructive Fraud, Breach of Fiduciary Duty, and Negligence Causes of Action Are Not Subject to the Anti-SLAPP Statute
(3) Of the four causes of action subject to the anti-SLAPP motions, we can immediately rule out all but the fraud cause of action. Section 425.16, subdivision (e)(1), (2) and (3) apply to “any written or oral statement.” [FN. 4] The breach of fiduciary duty, constructive fraud, and negligence claims are principally based on the Developer Board Members withholding information and improperly directing the expenditure of funds. These are not “written or oral statements.” Accordingly, those subdivisions do not apply.
The only possible application would be subdivision (e)(4), which pertains to “any other conduct in furtherance of the exercise of the constitutional right [729] of petition or the constitutional right of free speech….” (See, e.g., Lieberman v. KCOP Television, Inc. (2003) 110 Cal.App.4th 156 [1 Cal.Rptr.3d 536] [television station’s gathering of information to be used in broadcast was protected conduct]; No Doubt v. Activision Publishing, Inc. (2011) 192 Cal.App.4th 1018 [122 Cal.Rptr.3d 397][creation of a video game featuring the likeness of members of a famous rock band was expressive work constituting protected conduct].) Although defendants have paid lip service to the application of subdivision (e)(4), they make no effort to explain how withholding information they had a fiduciary duty to divulge, or expending funds to investigate and repair the Trails, is constitutionally protected conduct.
(4) Instead, defendants insist that these causes of action are in fact based on express statements made at board meetings, and thus should be treated the same as the fraud cause of action. Defendants recount that plaintiff’s attorney admitted at oral argument in the trial court that “[t]he fraud allegation is based on a statement that was made at a board meeting.” They then leap to the following conclusion: “In fact, allof the causes of action are based upon the allegation that the Defendants controlled, directed, and/or voted for certain actions taken by the HOA in connection with the Regional Trails. [Citation.] Therefore, the HOA’s admission … extends to all of the subject causes of action.” But that is a non sequitur. Controlling, directing, and voting for certain actions are not statements.
We recognize, nonetheless, that voting can constitute protected activity. (See Schroeder v. Irvine City Council (2002) 97 Cal.App.4th 174, 183, fn. 3 [118 Cal.Rptr.2d 330] [stating in dicta, with respect to city council member votes, “voting is conduct qualifying for the protections afforded by the First Amendment”].) Nonetheless, voting is not per se protected activity. (See Donovan v. Dan Murphy Foundation (2012) 204 Cal.App.4th 1500, 1506 [140 Cal.Rptr.3d 71] (Donovan)[stating, with respect to the vote of a nonprofit organization board member, “The mere act of voting, however, is insufficient to demonstrate that conduct challenged in a cause of action arose from protected activity.”].) Here, the HOA’s claim arises from the act of spending money in violation of the Developer Board Members’ fiduciary duties. The allegations in the complaint concerning the breach of fiduciary duty cause of action, for example, include no mention of voting. While the expenditure of money may have been precipitated by a vote, “the fact that protected activity may have triggered a cause of action does not necessarily mean the cause of action arose from the protected activity.” (Id. at p. 1507; see Graffiti Protective Coatings, Inc. v. City of Pico Rivera (2010) 181 Cal.App.4th 1207, 1218 [104 Cal.Rptr.3d 692][conduct challenged in action alleging city failed to comply with competitive bidding requirement was not officials’ communications or deliberations, but their failure to obey state and local laws].) The vote [730] was merely incidental. Thus the anti-SLAPP statute does not apply to the HOA’s causes of action for breach of fiduciary duty, constructive fraud, and negligence.
III. The Fraud Cause of Action Is Not Subject to the Anti-SLAPP Statute
The fraud cause of action presents a closer question. The HOA alleges the Developer Board Members fraudulently misrepresented that the HOA was financially liable for repairing the Trails. The HOA’s counsel conceded this representation was made at a HOA board meeting. Defendants contend subdivisions (e)(1), (2) and (3) apply.
A. Homeowners Association Board Meetings Are Not Official Proceedings
Subdivision (e)(1) applies to statements “made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law.” (Italics added.) Defendants contend homeowners association meetings are official proceedings authorized by law. In support of their contention they note that courts have described a homeowners association as a “quasi-governmental entity” (Silk v. Feldman (2012) 208 Cal.App.4th 547, 553 [145 Cal.Rptr.3d 484] (Silk)), and that the meetings and activities of homeowners associations are heavily regulated under the Davis-Stirling Common Interest Development Act (Civ. Code, § 4000 et seq.). Neither party cited, nor have we found, any case directly addressing the issue of whether a homeowners association meetings is an “official proceeding” for purposes of subdivision (e)(1).
We begin our analysis with two cases that found the proceeding before it was an official proceeding authorized by law. The first is the seminal case analyzing “official proceeding,” Kibler v. Northern Inyo County Local Hospital Dist. (2006) 39 Cal.4th 192 [46 Cal.Rptr.3d 41, 138 P.3d 193] (Kibler). The issue in Kibler was whether a hospital’s peer review disciplinary proceedings were “`official proceeding[s]'” for purposes of the anti-SLAPP statute. (Kibler, at p. 197.) The plaintiff was a doctor who had been disciplined. He sued the hospital based on statements made during the proceedings and the hospital brought an anti-SLAPP motion. (Id. at pp. 196-197.) In concluding the hospital peer review proceedings are official proceedings, the court relied on three considerations. First, peer review proceedings are required of hospitals and heavily regulated. (Id. at pp. 199-200.) Second, because hospitals are required to report the results of peer review proceedings to the Medical Board of California, peer review proceedings play a “significant role” in “`aid[ing] the appropriate state licensing boards in their responsibility to regulate and discipline errant [731] healing arts practitioners.'” (Id. at p. 200.) Third, “[a] hospital’s decisions resulting from peer review proceedings are subject to judicial review by administrative mandate. [Citation.] Thus, the Legislature has accorded a hospital’s peer review decisions a status comparable to that of quasi-judicial public agencies whose decisions likewise are reviewable by administrative mandate.” (Ibid.)
The second case reaching a similar result is Fontani v. Wells Fargo Investments, LLC (2005) 129 Cal.App.4th 719 [28 Cal.Rptr.3d 833], disapproved on other grounds in Kibler, supra, 39 Cal.4th at page 203, footnote 5. In Fontani a former securities broker-dealer sued his former employer based on statements the latter made to the National Association of Securities Dealers (NASD) concerning the reasons for the plaintiff’s termination. (Fontani, at p. 725.) The issue was whether the proceeding before the NASD was an “official proceeding” for purposes of subdivision (e)(1). (Fontani, at p. 728.) In answering in the affirmative, the court relied on the following observations: “In its capacity here, the NASD exercises governmental power because `it is the primary regulatory body for the broker-dealer industry’ and thus performs uniquely regulatory functions typically performed by a governmental regulatory agency. [Citations.] More specifically, while the NASD may perform some private functions, … it stands as a regulatory surrogate for the [Securities and Exchange Commission]. The federal securities laws `”delegate[] government power” to [self-regulatory organizations] such as the New York Stock Exchange … and the NASD “to enforce … compliance by members of the industry with both the legal requirements laid down in the Exchange Act and ethical standards going beyond those requirements.”‘” (Id. at p. 729; see Vergos v. McNeal (2007) 146 Cal.App.4th 1387, 1396 [53 Cal.Rptr.3d 647] [administrative grievance procedure set up by Regents of the University of California, “a constitutional entity having quasi-judicial powers,” deemed official proceeding].)
Next we turn to two cases holding the proceeding at issue was not an official proceeding.
In Garretson v. Post (2007) 156 Cal.App.4th 1508 [68 Cal.Rptr.3d 230], “[t]he key issue” was “whether defendant’s act of noticing a nonjudicial foreclosure sale of plaintiff’s property constitutes protected activity under the anti-SLAPP statute.” (Id. at p. 1515.) The court noted that nonjudicial foreclosure sales are governed by a comprehensive statutory framework and that the end result is a “final adjudication of the rights of the borrower and lender.” (Id. at p. 1516.) The court also noted that nonjudicial foreclosure activity is protected by the litigation privilege. (Id. at p. 1518.) Nonetheless, the court concluded a nonjudicial foreclosure is fundamentally a “`private, contractual proceeding, rather than an official, governmental proceeding or [732] action.'” (Id. at p. 1520.) The court distinguished Kibler on the basis that nonjudicial foreclosures “are not closely linked to any governmental, administrative, or judicial proceedings or regulation, such as the state licensing and regulation of physicians in Kibler.” (Garretson, at p. 1521.)
In Donovan, supra, 204 Cal.App.4th 1500, the plaintiff was a former member of the board of directors of a nonprofit charitable organization who sued the organization and current board members for wrongful removal. (Id. at pp. 1502-1503.) The defendants contended the board meeting at which the plaintiff was removed was an official proceeding because “board of directors meetings and majority voting are authorized under the Corporations Code, and the issue whether to retain [the plaintiff] was an issue of consideration before the [board of directors].” (Id. at p. 1508.) The court rejected that contention and distinguished Kibler on the basis that board decisions are not subject to review by administrative mandate and because, though meetings of the board of directors were authorized by statute, “the actual procedures are left to the private organizations.” (Donovan, at p. 1508; see Olaes v. Nationwide Mutual Ins. Co. (2006) 135 Cal.App.4th 1501, 1508 [38 Cal.Rptr.3d 467] [private company’s sexual harassment grievance protocol not an official proceeding].)
(5) In this spectrum of cases, homeowners association meetings fall outside the scope of official proceedings. Although the word “official” in subdivision (e)(1) is not coextensive with “governmental” (Kibler, supra, 39 Cal.4th at p. 203), the case law demonstrates that nongovernmental proceedings must have a strong connection to governmental proceedings to qualify as “official.” Thus, although courts have recognized the similarities between a homeowners association and a local government, even going so far as to describe a homeowners association as a “quasi-governmental entity, paralleling the powers and duties of a municipal government” (Silk, supra, 208 Cal.App.4th at p. 553), a homeowners association is not performing or assisting in the performance of the actual government’s duties, as was the case in Kibler and Fontani. Further, unlike the hospital peer review board decision in Kibler, decisions by the board of a homeowners association are not reviewable by administrative mandate. Thus they have not been delegated government functions to the same extent. Finally we note that although no case has directly addressed this issue, multiple cases have addressed anti-SLAPP motions arising from statements at homeowners association board meetings, and all such cases have analyzed the case under the rubric of subdivision (e)(3) or (4). (See, e.g., Silk, at p. 553; Cabrera v. Alam (2011) 197 Cal.App.4th 1077, 1086-1087 [129 Cal.Rptr.3d 74]; Damon v. Ocean Hills Journalism Club (2000) 85 Cal.App.4th 468, 474 [102 Cal.Rptr.2d 205] (Damon).) Our holding is consistent with the approach taken in those cases.
[733] B. Whether the HOA or the Developers Were Liable to Pay for Repairs to the Trails Was Not an Issue Under Consideration by a Governmental Body
Subdivision (e)(2) applies to statements “made in connection with an issue under consideration or review by a legislative, executive, or judicial body.” Citing allegations in the complaint that the Developers worked closely with the County of Orange and City of San Clemente in the construction of the Trails, defendants contend “there can be no dispute that the construction and condition of the trails were issues under consideration and review by governmental agencies, and alleged statements regarding these issues were protected speech.”
The problem is, the relevant issue is not the general construction and condition of the Trails. Rather, the allegedly fraudulent statement concerns who has to pay for repairing the Trails. There is nothing in the record suggesting the County of Orange or City of San Clemente was considering that issue.
(6) Courts have generally rejected attempts to abstractly generalize an issue in order to bring it within the scope of the anti-SLAPP statute. For example, in the context of subdivision (e)(3), where the statement must concern an issue of public interest, the court in World Financial Group, Inc. v. HBW Ins. & Financial Services, Inc. (2009) 172 Cal.App.4th 1561, 1570 [92 Cal.Rptr.3d 227], stated, “While employee mobility and competition are undoubtedly issues of public interest when considered in the abstract, one could arguably identify a strong public interest in the vindication of any right for which there is a legal remedy. `The fact that “a broad and amorphous public interest” can be connected to a specific dispute is not sufficient to meet the statutory requirements’ of the anti-SLAPP statute. [Citation.] By focusing on society’s general interest in the subject matter of the dispute instead of the specific speech or conduct upon which the complaint is based, defendants resort to the oft-rejected, so-called `synecdoche theory of public issue in the anti-SLAPP statute,’ where `[t]he part [is considered] synonymous with the greater whole.’ [Citation.] In evaluating the first prong of the anti-SLAPP statute, we must focus on `the specific nature of the speechrather than the generalities that might be abstracted from it.'” (Italics added.) Similarly, here, our focus is not on some general abstraction that may be of concern to a governmental body, but instead on the specific issue implicated by the challenged statement and whether a governmental entity is reviewing that particular issue. On the record before us, this requirement is not satisfied.
[734] C. Who Was to Pay For Repairing the Trail Was Not an Issue of Public Interest
Subdivision (e)(3) applies to statements “made in a place open to the public or a public forum in connection with an issue of public interest….” Plaintiff concedes homeowners association meetings constitute a public forum, and thus the issue boils down to whether the alleged fraudulent statements were in connection with an issue of public interest.
(7) “The definition of `public interest’ within the meaning of the anti-SLAPP statute has been broadly construed to include not only governmental matters, but also private conduct that impacts a broad segment of society and/or that affects a community in a manner similar to that of a governmental entity.” (Damon, supra, 85 Cal.App.4th at p. 479.) “Although matters of public interest include legislative and governmental activities, they may also include activities that involve private persons and entities, especially when a large, powerful organization may impact the lives of many individuals.” (Church of Scientology v. Wollersheim (1996) 42 Cal.App.4th 628, 650 [49 Cal.Rptr.2d 620], disapproved on other grounds in Equilon Enterprises v. Consumer Cause, Inc., supra, 29 Cal.4th at p. 68, fn. 5.) However, “in cases where the issue is not of interest to the public at large, but rather to a limited, but definable portion of the public (a private group, organization, or community), the constitutionally protected activity must, at a minimum, occur in the context of an ongoing controversy, dispute or discussion, such that it warrants protection by a statute that embodies the public policy of encouraging participation in matters of public significance.” (Du Charme v. International Brotherhood of Electrical Workers (2003) 110 Cal.App.4th 107, 119 [1 Cal.Rptr.3d 501].)
It is the latter requirement that is absent with respect to the fraud cause of action here. There is no indication in the record that there was any controversy, dispute, or discussion surrounding the Developer Board Members’ representation that the HOA was liable to pay the repair costs. To the contrary, a declaration submitted by an independent board member states, “I believed [the Developer Board Members’] representations, as I had no reason to believe at the time that they were not telling me the truth or acting in the best interest of the Association.” This suggests there was no controversy about the issue, and nothing in the record contradicts that inference. The Developer Board Members made their statements and others believed them without dispute. Given the absence of any controversy, dispute, or discussion, the issue of who was to pay for the repairs, which was of interest to only a narrow sliver of society, was not a public issue.
By contrast, in cases involving statements made at public homeowners association forums where the court found there was a public issue, the [735] requirement of an ongoing controversy was satisfied. In Damon, for example, “each of the alleged defamatory statements concerned (1) the decision whether to continue to be self-governed or to switch to a professional management company; and/or (2) [the general manager’s] competency to manage the Association.” (Damon, supra, 85 Cal.App.4th at p. 479.) “Moreover, the statements were made in connection with the Board elections and recall campaigns.” (Ibid.) Indeed, “[b]y the end of 1997, the senior citizen residents of Ocean Hills were largely split into two camps: those who favored [the general manager’s] continued service and those who wanted [him] terminated as general manager.” (Id. at p. 472.) In Cabrera v. Alam, supra, 197 Cal.App.4th at page 1082, the statement at issue was an accusation in the midst of an election campaign that a past president had stolen money from and defrauded the homeowners association. In Silk, supra, 208 Cal.App.4th at page 551, the challenged statement was again in the context of a board election and implied an incumbent board member had engaged in selfdealing. In contrast to these cases, the total absence of controversy in the present case is plain. Accordingly, the allegedly fraudulent statement here did not concern a public issue.
(8) Because defendants failed to meet their burden to show the challenged causes of action arose from protected activity, “we affirm the trial court’s ruling and need not address the merits of the case under the second prong of the statute.” (Castleman, supra, 216 Cal.App.4th at p. 490.)
DISPOSITION
The order is affirmed. Plaintiff shall recover its costs incurred on appeal.
Moore, Acting P. J., and Thompson, J., concurred.
[FN. 1] The complaint also listed the County of Orange as a defendant solely because it has an easement on the trails at issue and is a party to one of the agreements subject to the declaratory relief action. Any reference to “defendants” in this opinion excludes the County of Orange.
[FN. 2] SLAPP is an acronym for “`strategic lawsuit against public participation.'” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 815, fn. 1 [124 Cal.Rptr.3d 256, 250 P.3d 1115].)
[FN. 3] All statutory references are to the Code of Civil Procedure unless otherwise stated.
[FN. 4] “References to “subdivisions (e)(1),” “subdivision (e)(2),” “subdivision (e)(3),” and “subdivision (e)(4)” are to section 425.16.
Related Links
“Requesting HOA Enforcement Held to be Constitutionally Protected Activity” – Published on HOA Lawyer Blog (January 2018)
Market Lofts Community Association v. 9th Market Lofts, LLC
[Association Standing to Sue] Right of association to challenge developer agreements; right to bring suit as representative of association’s members.
COUNSEL
Freeman, Freeman & Smiley, Todd M. Lander and Tracy R. Daub for Plaintiff and Appellant.
Law Offices of Stephen D. Marks, Stephen D. Marks; Katten Muchin Rosenman, Gregory S. Korman, Andrew J. Demko and Johanna R. Bloomfield for Defendants and Respondents.
[927] OPINION
ASHMANN-GERST, J. —
A homeowners association appeals from the judgment of dismissal following the sustaining of a demurrer without leave to amend its second amended complaint (SAC). The trial court sustained the demurrer on the ground that the association lacked standing both on its own behalf and as a representative of the homeowners to assert claims against the developers relating to contractual parking rights. We reverse the judgment of dismissal.
FACTUAL AND PROCEDURAL BACKGROUND
The Parties
Appellant is Market Lofts Community Association (HOA), which is the homeowners association for the condominium owners at a mixed-use upscale development called Market Lofts, located at the corner of 9th and Flower Streets in downtown Los Angeles, adjacent to the Staples Center. Retail spaces are located on the street level and 267 residential condominium units are located above. Respondents are essentially two sets of developers — the developer of Market Lofts (referred to as 9th Street) and the developer of an adjacent parking structure that contains 319 parking spaces for the Market Lofts condominium owners (referred to as CIM).[FN. 1]
Allegations of the SAC
The SAC alleges the following: On May 11, 2006, the Developers entered into a “PARKING LICENSE AGREEMENT” (License Agreement). At this time, construction of Market Lofts had not been completed and the HOA had not been formed. Pursuant to section D of the License Agreement, which is attached to the SAC, CIM agreed to grant to 9th Street “for the benefit of the residential homeowner’s association (the `HOA‘) to be formed in connection with the sale of residential condominium units in the Market Lofts Project and the owners and occupants of the residential units … a license to use the Market Lofts Parking Spaces, which shall be appurtenant to the Market Lofts Property.” (Italics & underscoring added.)
Section 2.1 of the License Agreement specifies that the license granted is “perpetual” for the exclusive use of the 319 parking spaces, and that the [928] license “shall be at no cost” to 9th Street, except for the obligation to pay its proportionate share of “CAM Charges” (common area maintenance) to CIM. Section 2.5 provides that the license is “irrevocable.” Section 13 states that “Upon the First Closing [(defined as the close of escrow for the first residential unit sold)], [9th Street] shall assign or sub-license its rights and obligations under this Agreement to the HOA…. [T]he terms and conditions of this Agreement shall be covenants that run with the land….”
The HOA was formally incorporated on January 10, 2007, and the first sale of a Market Lofts condominium occurred later that year.
On January 24, 2007, the HOA and 9th Street entered into a “Parking Sub-License Agreement” (Sub-License), which is also attached to the SAC. At that time, respondents Lee, Adler and Magdych comprised a “controlling majority” of the HOA’s board of directors and “each was simultaneously serving as an agent, employee, partner and/or member of the 9th Street and/or CIM defendants.” According to the SAC, rather than sublicensing its rights under the License Agreement to the HOA, 9th Street and the other respondents engaged in self-dealing by using the Sub-License “to strip the Association of many of the rights afforded it under the License Agreement and concurrently impose on it financial and other obligations in direct contravention of the terms of [the License Agreement].”
For example, while 9th Street granted to the HOA a sublicense for the exclusive use of the 319 parking spaces pursuant to section 2.1 of the Sub-License, section 3.1 provides that the HOA will pay 9th Street a monthly fee of $75 for each parking space, to be increased annually by 5 percent, and to be adjusted every 10 years to the prevailing market rate for similar parking. Section 4 provides that the term of the Sub-License is the earlier of the date of termination of the covenants, conditions, restrictions and reservation of easements for the Market Lofts project (CC&R’s) or 49 years from the date of the Sub-License with the HOA being permitted to renew the Sub-License no more than five successive 10-year periods. Section 17.6 provides a late fee of 18 percent for any late payment. The SAC details numerous other provisions in the Sub-License that differ from the License Agreement and that “limit the rights of the Association and its members in various respects, all of which contravene the License Agreement.”
The CC&R’s were signed by respondent Lee as both developer and declarant, and were recorded in the Los Angeles County Recorder’s Office on May 23, 2007. According to the SAC, the CC&R’s “are notable not for the information provided in their 80 pages, but rather for what they fail to disclose,” namely, that “the License Agreement plainly extended a perpetual and irrevocable license to the Association and the homeowners.” The SAC [929] alleges that at paragraph 3 of the CC&R’s, which is attached to the original and first amended complaints but not to the SAC, “the Sub-License is identified as the governing document by which `Declarant has granted a sublicense to the Association for the benefit of the Owners and other “Permitted Users” to use the parking spaces.'” The CC&R’s were distributed to prospective purchasers in advance of their acquisition of the residential units. The Sub-License and License Agreement were buried in a “massive package” of documents submitted to prospective purchasers of the Market Lofts units, and there was no identification or specific disclosure of the existence of the two agreements or “the critical distinctions in their terms.”
It was not until January 2011 that “the developer dominated Association Board gave way to one controlled by homeowners with no ties to the Defendants,” and “only then, was the [HOA] able to investigate these circumstances comprehensively and initiate ameliorative steps necessary to restore the rights intended by and set forth in the License Agreement.”
The HOA and its members have been damaged in excess of $1 million in paid parking fees. The SAC further alleges that in the event a homeowner refuses to pay the monthly parking fee, the HOA is obligated to do so.
Causes of Action
The HOA first sued the Developers on November 1, 2011. On August 22, 2012, the HOA filed the SAC, which contains two causes of action for declaratory relief, plus causes of action for breach of fiduciary duty, breach of the License Agreement, concealment, unfair business practices, and rescission of the Sub-License. The SAC alleges in both declaratory relief causes of action that the HOA and the Developers dispute their rights under the License Agreement and the Sub-License, and that the HOA seeks a declaration that the Sub-License is void and of no force and effect to the extent that it conflicts with the License Agreement. The HOA brings all other causes of action on its own behalf and as a representative of the condominium owners.
The Demurrer Pleadings and Ruling
The Developers filed a consolidated demurrer to each cause of action in the SAC. The HOA opposed the demurrer, which the trial court sustained without leave to amend on the sole ground that the HOA lacked standing to sue. The trial court concluded that “because the individual homeowners here paid the alleged illegal parking fees and Plaintiff only collected them, Plaintiff has not shown that it suffered an injury such that it has standing.” The HOA then filed this appeal.
[930] DISCUSSION
- Standard of Review
We review de novo a trial court’s sustaining of a demurrer without leave to amend, exercising our independent judgment as to whether a cause of action has been stated as a matter of law. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300 [58 Cal.Rptr.2d 855, 926 P.2d 1042]; Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125 [271 Cal.Rptr. 146, 793 P.2d 479].) We assume the truth of properly pleaded allegations in the complaint and give the complaint a reasonable interpretation, reading it as a whole and with all its parts in their context. (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 558 [71 Cal.Rptr.2d 731, 950 P.2d 1086]; People ex rel. Lungren v. Superior Court, supra, at p. 300.) We may disregard allegations which are contrary to law or to judicially noticed facts. (Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 559-560 [53 Cal.Rptr.2d 878].) “On appeal, we do not review the validity of the trial court’s reasoning but only the propriety of the ruling itself.” (Rodas v. Spiegel(2001) 87 Cal.App.4th 513, 517 [104 Cal.Rptr.2d 439].) Thus, the judgment of dismissal will be affirmed if it is proper on any of the grounds raised in the demurrer, even if the trial court did not rely on those grounds. (Jackson v. Doe (2011) 192 Cal.App.4th 742, 750-751 [121 Cal.Rptr.3d 685].) We apply the abuse of discretion standard in reviewing a trial court’s denial of leave to amend. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58]; Hernandez v. City of Pomona(1996) 49 Cal.App.4th 1492, 1497-1498 [57 Cal.Rptr.2d 406].)
- The Trial Court Erred in Sustaining the Demurrer on the Lack of Standing
- Declaratory Relief Causes of Action
The first and second causes of action in the SAC seek declaratory relief with respect to the License Agreement and the Sub-License. We agree with the HOA that it has standing to bring these two causes of action on its own behalf.
Code of Civil Procedure section 1060 provides in part that “[a]ny person interested under a written instrument … or under a contract … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.”
[931] (1) As the court explained in Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 606 [98 Cal.Rptr.2d 277]: “All that Code of Civil Procedure section 1060 requires is that there be [an] `actual controversy relating to the legal rights and duties of the respective parties.’ … A cardinal rule of pleading is that only the ultimate facts need be alleged. [Citation.] In a declaratory relief action, the ultimate facts are those facts establishing the existence of an actual controversy. (Code Civ. Proc., § 1060.) … However, to be entitled to declaratory relief, a party need not establish that it is also entitled to a favorable judgment…. `A complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the parties under a written instrument or with respect to property and requests that the rights and duties of the parties be adjudged by the court. [Citations.] If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to [a] favorable declaration. [Citations.]'” (See Alameda County Land Use Assn. v. City of Hayward (1995) 38 Cal.App.4th 1716, 1722 [45 Cal.Rptr.2d 752] [If the pleaded “facts reveal an actual controversy exists between the parties, the complaint is legally sufficient for declaratory relief”].)
The HOA is an interested party because it is a directly named beneficiary of the License Agreement and is a direct contracting party to the Sub-License. Thus, if the HOA has alleged an actual controversy, it is entitled to seek a declaration of the rights imposed and duties afforded under the License Agreement and the Sub-License. Contrary to the Developers’ assertion, the SAC alleges an actual controversy. The SAC details the material differences in the two agreements, and alleges: “At present, the Association is not enjoying the full benefits of the License Agreement and cannot confer on its member owners the perpetual parking rights prescribed by that agreement.” The SAC also alleges: “There is currently a dispute regarding the efficacy of the License Agreement and the Sub-License, and of the Association’s and its members’ rights under these agreements. The Association alleges that it is entitled to the rights set forth in the License Agreement, and that to the extent the Sub-License conflicts with those rights, it is ineffective. The Association is informed and believes, and on that basis alleges, that the Defendants, and each of them, contest the Association’s claims and allege otherwise.” The HOA seeks numerous declarations regarding the two agreements, including a declaration that the Sub-License is of no force and effect to the extent it conflicts with the License Agreement.
(2) The trial court adopted the Developers’ argument that the HOA lacks standing to bring the declaratory relief claims because the HOA is actually seeking a declaration of its members’ rights, rather than its own, since the members pay the parking fees. But this argument overlooks that the HOA is a [932] direct beneficiary of the License Agreement and is a contracting party to the Sub-License. If the Developers’ argument were correct, then the HOA would be powerless to seek a determination of its own rights under either contract. The law allows any party with an interest in a contract to pursue a declaration of rights as to that instrument when an actual controversy exists. (Code Civ. Proc., § 1060.)
The Developers’ additional argument that there is no actual controversy is also without merit. The Developers essentially ignore the License Agreement and focus on the Sub-License, asserting that the HOA understands its obligations under the Sub-License, i.e., to collect parking charges from its members and disburse them to 9th Street. But this argument takes an overly simplistic view of the SAC. The HOA is not asking the trial court to merely interpret the terms of the Sub-License. Rather, the HOA is asking the trial court to resolve the interplay between the two agreements. In other words, the HOA contends that the License Agreement must govern the parking arrangements and that the Sub-License is invalid, while the Developers dispute this contention.
(3) In our opinion, the SAC alleges an actionable dispute between the HOA and the Developers, and the HOA has standing to seek a resolution of this dispute. The trial court therefore erred in sustaining the demurrer to the two declaratory relief causes of action.
- Remaining Causes of Action
The HOA contends that it has standing to bring the remaining causes of action for breach of fiduciary duty, breach of the License Agreement, concealment, unfair business practices, and rescission of the Sub-License either by itself or as a representative of the homeowners. We agree.
(4) With respect to the contract causes of action, it goes without saying that a party to a contract or one for whom the contract was intended to benefit may bring actions related to such contracts. Thus, the HOA is the real party in interest entitled to bring contract claims relating to the License Agreement and the Sub-License. The Developers’ reliance on the argument that the HOA is not the real party in interest because it is seeking to enforce rights that belong to its members, not itself, is of no import. The SAC alleges that the HOA is directly obligated to pay the parking fees and that “in the event a homeowner refused to pay the monthly fee, the Association is obligated to do so.” For purposes of the demurrer, we must accept this allegation as true.
(5) With respect to the other causes of action, the HOA has standing to sue as a representative of the individual homeowners. Code of Civil Procedure section 382 provides in part that “when the question is one of a common [933] or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.” While this statute is sometimes referred to as the “class action statute,” it also sanctions representative, nonclass actions. “`It may also be true that while all class suits are representative in nature, all representative suits are not necessarily class actions.‘” (Raven’s Cove Townhomes, Inc. v. Knuppe Development Co. (1981) 114 Cal.App.3d 783, 794 [171 Cal.Rptr. 334] (Raven’s Cove).) Thus, California courts have routinely allowed homeowners associations to sue solely as the representatives of their members. (See, e.g., id. at p. 795; Property Owners of Whispering Palms, Inc. v. Newport Pacific, Inc. (2005) 132 Cal.App.4th 666, 672-673 [33 Cal.Rptr.3d 845] [“`[e]ven in the absence of injury to itself, an association may have standing solely as the representative of its members'”]; Salton City etc. Owners Assn. v. M. Penn Phillips Co. (1977) 75 Cal.App.3d 184, 189 [141 Cal.Rptr. 895].)
The two requirements that must be satisfied for a representative action are an ascertainable class and a well-defined community of interest in the questions of law and fact involved affecting the parties to be represented. (Raven’s Cove, supra, 114 Cal.App.3d at p. 795, citing Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 704 [63 Cal.Rptr. 724, 433 P.2d 732].) Here, there is plainly an ascertainable class — the homeowners. There is also a well-defined community of interest concerning the relevant questions of law and fact. Each homeowner is subject to the same parking charges and any invalidity of the Sub-License would affect the homeowners in the same manner. The homeowners are also the victims of the Developers’ alleged self-dealing. Additionally, questions of necessity, convenience and justice likewise support the HOA’s standing, because otherwise 267 homeowners would individually have to prosecute their claims. (See Tenants Assn. of Park Santa Anita v. Southers(1990) 222 Cal.App.3d 1293, 1304 [272 Cal.Rptr. 361] [“we conclude that considerations of necessity, convenience and justice provide justification for the use of the representative procedural device”].)
The Developers argue that the HOA cannot be allowed to proceed as a representative of the homeowners because the Developers would be deprived of defenses they would have against individual homeowners, such as the statute of limitations, notice, reliance, causation, waiver and estoppel. But these factual defenses pertain to the merits of the causes of action, an issue we are not concerned with at this initial pleading stage. Moreover, the Developers have not demonstrated why they would be precluded from pursuing these defenses or conducting discovery in this regard.
Additionally, even if individualized assessments are made, that does not destroy the commonality requirement. In Raven’s Cove, supra, 114 [934] Cal.App.3d 783, the homeowners association sued to redress defects in common area landscaping and for damage to the exterior walls of individual units. Despite the fact that the damage to each unit would necessarily be individualized, the reviewing court found a sufficient commonality of interest because each owner had a similar beneficial interest in the outcome of the case. (Id. at p. 795.) The same is true here, where each homeowner would receive restoration of the parking rights provided in the License Agreement, if the HOA prevails.
(6) To the extent the Developers also argue that the HOA lacks standing to sue because it is not claiming damage to a common area under Civil Code former section 1368.3, such argument is without merit. This statute dealt with the standing of a homeowners association to sue “in its own name as the real party in interest” in specific matters, including damage to the common area and enforcement of the governing documents. (Civ. Code, former § 1368.3.) This statute had nothing to do with a homeowners association’s standing to sue in a representative capacity.
III. The Developers’ Argument Regarding the CC&R’s
The Developers spend much of their brief arguing that, apart from the issue of standing, the causes of action in the SAC are barred because the Sub-License is part of the governing CC&R’s, a recorded document which is presumptively enforceable, and which was provided to each prospective homeowner. Because a judgment of dismissal can be upheld on any ground raised in the demurrer, even when the trial court did not rely on that ground, we address the merits.
(7) Under the Davis-Stirling Common Interest Development Act (Civ. Code, former § 1350 et seq.) (Davis-Stirling Act), “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.” (Civ. Code, former § 1354, subd. (a).) “This statutory presumption of reasonableness requires that recorded covenants and restrictions 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.”‘ [Citation.]” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 239 [145 Cal.Rptr.3d 514, 282 P.3d 1217]; see Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th, 361, 382 [33 Cal.Rptr.2d 63, 878 P.2d 1275].) The Developers argue that the HOA failed to meet its “burden” of showing that the Sub-License parking fee, of which each homeowner had constructive, if not actual, notice was unreasonable.
[935] The Developers’ argument shows that they are trying to impose their own vision of what this case is about. This lawsuit is not a formal challenge to the CC&R’s or an attempt to formally amend the CC&R’s, for which the Davis-Stirling Act provides the procedural amendment requirements. (Civ. Code, former §§ 1354, 1355.) As the HOA noted in its opposition to the demurrer, “[t]his litigation is centered around the efficacy of the License Agreement and Defendants’ actions to unwind the Association’s rights related to that contract.”
(8) The HOA acknowledges that the Sub-License is identified in the CC&R’s, and that the homeowners had at least constructive notice of the existence of the Sub-License. What the HOA complains about is that neither the rights embodied in the License Agreement and how those rights differed from what the Sub-License provided nor the Developers’ alleged self-dealing in systematically unraveling the rights in the License Agreement by way of the Sub-License were disclosed to either the original HOA or to subsequent homeowners. As the HOA noted below, the Developers have conflated two separate and unrelated concepts: Notice and invalidity of the Sub-License. The HOA therefore alleges causes of action for breach of the License Agreement and breach of fiduciary duties. In Raven’s Cove, supra,114 Cal.App.3d 783, the appellate court stated that a “developer and his agents and employees who also serve as directors of an association [in its initial period], like the instant one, may not make decisions for the Association that benefit their own interests at the expense of the association and its members…,” and may therefore be sued for breach of fiduciary duty. (Id. at p. 799.)
Even assuming the Davis-Stirling Act applies here, it does not provide a basis for sustaining the demurrer without leave to amend. We are not prepared to say that the alleged self-dealing by fiduciaries of the HOA that violates the fundamental public policy of the need for trust and accountability with respect to certain special relationships is reasonable as a matter of law. (See Raven’s Cove, supra, 114 Cal.App.3d at pp. 800-801 [“the initial directors and 40officers of the Association had a fiduciary relationship to the homeowner members analogous to that of a corporate promoter to the shareholders. These duties take on a greater magnitude in view of the mandatory association membership required of the homeowner. We conclude that since the Association’s original directors (comprised of the owners of the Developer and the Developer’s employees) admittedly failed to exercise their supervisory and managerial responsibilities … and acted with a conflict of interest, they abdicated their obligation as initial directors of the Association …”].)
[936] DISPOSITION
The judgment of dismissal following the sustaining of the demurrer to the SAC is reversed. The HOA is entitled to recover its costs on appeal.
Boren, P. J., and Ferns, J.,[*] concurred.
[FN. 1] Respondents shall be referred to collectively as “the Developers.” 9th Street consists of respondents 9th Street Market Lofts, LLC; 645 9th Street, LLC; and the Lee Group, Inc. CIM consists of CIM/830 S. Flower, LLC; CIM Market at 9th & Flower, LLC; CIM/8th & Hope, LLC; and CIM Group, L.P. Respondents also include Jeffrey Lee (Lee); Michael Adler (Adler); and David Magdych (Magdych).
[*] Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Beacon Residential Community Association v. Skidmore
[Construction Defect; Architect Liability] An architect who functions as the principal architect on a residential construction project owes a duty of care to future homeowners.
COUNSEL
Law Offices of Ann Rankin, Ann Rankin, Terry L. Wilkens; Katzoff & Riggs, Kenneth S. Katzoff, Robert R. Riggs, Sung E. Shim and Stephen G. Preonas for Plaintiff and Appellant; Berding & Weil and Matt J. Malone for Consumer Attorneys of California and Executive Council of Homeowners as Amici Curiae on behalf of Plaintiff and Appellant; Horvitz & Levy, Peder K. Batalden and Peter Abrahams for Defendants and Respondents Skidmore, Owings & Merrill LLP and HKS, Inc; Robles, Castles & Meredith and Richard C. Young for Defendant and Respondent Skidmore, Owings & Merrill LLP; Schwartz & Janzen, Noel E. Macaulay and Steven H. Schwartz for Defendant and Respondent HKS, Inc; Fred J. Hiestand for the Civil Justice Association of California as Amicus Curiae on behalf of Defendants and Respondents; Shannon B. Jones Law Group, Kathleen F. Carpenter, Jessica M. Takano and Amy R. Gowan for California Building Industry Association as Amicus Curiae on behalf of Defendants and Respondents; Collins Collins Muir + Stewart, David E. Barker and Melinda W. Ebelhar for The American Institute of Architects California Council and The American Institute of Architects as Amici Curiae on behalf of Defendants and Respondents.
[571] OPINION
LIU, J. —
A homeowners association on behalf of its members sued a condominium developer and various other parties over construction design defects that allegedly make the homes unsafe and uninhabitable for significant portions of the year. Two defendants were architectural firms, which allegedly designed the homes in a negligent manner but did not make the final decisions regarding how the homes would be built. Applying our decision in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 [11 Cal.Rptr.2d 51, 834 P.2d 745] (Bily) and relying on Weseloh Family Ltd. Partnership v. K.L. Wessel Construction Co., Inc. (2004) 125 Cal.App.4th 152 [22 Cal.Rptr.3d 660] (Weseloh), the trial court sustained a demurrer in favor of defendant architectural firms, reasoning that an architect who makes recommendations but not final decisions on construction owes no duty of care to future homeowners with whom it has no contractual relationship. The Court of Appeal reversed, concluding that an architect owes a duty of care to homeowners in these circumstances, both under the common law and under the Right to Repair Act (Civ. Code, § 895 et seq.).
Building on substantial case law and the common law principles on which it is based, we hold that an architect owes a duty of care to future homeowners in the design of a residential building where, as here, the architect is a principal architect on the project — that is, the architect, in providing professional design services, is not subordinate to other design professionals. The duty of care extends to such architects even when they do not actually build the project or exercise ultimate control over construction. Accordingly, we affirm the judgment of the Court of Appeal.
I.
In considering whether a demurrer should have been sustained, “we accept as true the well-pleaded facts in the operative complaint….” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1189, fn. 1 [151 Cal.Rptr.3d 827, 292 P.3d 871].) The facts alleged in plaintiffs’ third amended complaint (the complaint) are as follows.
Skidmore, Owings & Merrill LLP (SOM) and HKS, Inc. (individually and doing business as HKS Architects, Inc.; hereafter HKS), are design professionals. SOM and HKS (collectively defendants) provided architectural and engineering services for The Beacon residential condominiums, a collection of 595 condominium units and associated common areas located in San Francisco (the Project). Although the units were initially rented out for two years after construction, defendants provided their services knowing that the finished construction would be sold as condominiums. A condominium [572] association was formed, and the condominium’s conditions, covenants, and restrictions were recorded, before construction commenced.
The homeowners association, plaintiff Beacon Residential CommunityAssociation (Association), sued several parties involved in the construction of those condominiums, including several business entities designated as the original owners and developers of the condominium, as well as SOM and HKS, with whom the owners and developers contracted for architectural services. SOM and HKS were the only architects on the Project. Plaintiff alleged that negligent architectural design work performed by defendants resulted in several defects, including extensive water infiltration, inadequate fire separations, structural cracks, and other safety hazards. One of the principal defects is “solar heat gain,” which made the condominium units uninhabitable and unsafe during certain periods due to high temperatures. Plaintiff alleged that the solar heat gain is due to defendants’ approval, contrary to state and local building codes, of less expensive, substandard windows and a building design that lacked adequate ventilation. Defendants are named in the first cause of action (“Civil Code Title 7 — Violation of Statutory Building Standards for Original Construction”), the second cause of action (“Negligence Per Se in Violation of Statute”), and the fifth cause of action (“Negligence of Design Professionals and Contractors”).
According to the complaint, defendants “provided architectural and engineering services” for the Project that “included, but were not limited to, architecture, landscape architecture, civil engineering, mechanical engineering, structural engineering, soils engineering and electrical engineering, as well as construction administration and construction contract management.” Defendants were paid more than $5 million for their work on the Project. In addition to “providing original design services at the outset”, of the Project, defendants played an active role throughout the construction process, coordinating efforts of the design and construction teams, conducting weekly site visits and inspections, recommending design revisions as needed, and monitoring compliance with design plans.
Defendants demurred, contending they owed no duty of care to the Association or its members under the facts alleged. The trial court agreed: “The allegations do not show that either of the architects went beyond the typical role of an architect, which is to make recommendations to the owner. Even if the architect initiated the substitutions, changes, and other elements of design that Plaintiff alleges to be the cause of serious defects, so long as the final decision rested with the owner, there is no duty owed by the architect to the future condominium owners, in the Court’s view. The owner made the final decision according to the third amended complaint.” The trial court granted plaintiff leave to amend the complaint to allege that defendants [573] “actually dictated and controlled the decision to eliminate [ventilation] ducts, acting in a manner that was contrary to the directions of the owner, or that ignored the owner’s directions,” but plaintiff declined.
The Court of Appeal reversed. It applied the factors set forth by this court in Biakanja v. Irving (1958) 49 Cal.2d 647, 650 [320 P.2d 16] (Biakanja) for determining whether a party owes a duty of care to a third party and concluded that the defendants owed a duty of care to the Association in this case. The court distinguished Weseloh, supra, 125 Cal.App.4th 152, a case that found no duty of care owed by a design engineer to a commercial property owner, on the grounds that Weseloh was decided on summary judgment rather than demurrer and that Weseloh had expressly limited its holding to its facts. The Court of Appeal further concluded that Bily, supra, 3 Cal.4th 370, did not support defendants’ position. Finally, the court concluded that the Right to Repair Act expressed a legislative intent to impose on design professionals a duty of care to future homeowners. (See Civ. Code, § 895 et seq.)
We granted review.
II.
(1) “Actionable negligence involves a legal duty to use due care, a breach of such legal duty, and the breach as the proximate or legal cause of the resulting injury.” (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 594 [83 Cal.Rptr. 418, 463 P.2d 770].) This case is concerned solely with the first element of negligence, the duty of care. Whether a duty of care exists “in a particular case is a question of law to be resolved by the court. [Citation.] [¶] A judicial conclusion that a duty is present or absent is merely `”a shorthand statement … rather than an aid to analysis …. `[D]uty,’ is not sacrosanct in itself, but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection.”‘ [Citation.] `Courts, however, have invoked the concept of duty to limit generally “the otherwise potentially infinite liability which would follow from every negligent act….”‘” (Bily, supra, 3 Cal.4th at p. 397.)
Here we consider whether design professionals owe a duty of care to a homeowners association and its members in the absence of privity. Although the issue presented in this case has not been decided by this court, we do not write on a blank slate. As explained below, courts have found in a variety of circumstances that builders, contractors, and architects owe a duty of care to third parties.
[574] A.
(2) Although liability for the supply of goods and services historically required privity of contract between the supplier and the injured party, the significance of privity has been greatly eroded over the past century. As we noted more than 50 years ago, “[l]iability has been imposed, in the absence of privity, upon suppliers of goods and services which, if negligently made or rendered, are `reasonably certain to place life and limb in peril.’ [Citations.] There is also authority for the imposition of liability where there is no privity and where the only foreseeable risk is of damage to tangible property. [Citations.]” (Biakanja, supra, 49 Cal.2d at p. 649.) In Biakanja, we held that a notary public who negligently drafted a will was liable to the intended beneficiary of the will. (Id. at pp. 650-651.) We explained that “[t]he determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.” (Id. at p. 650.)
The declining significance of privity has found its way into construction law. We described the evolution in Aas v. Superior Court (2000) 24 Cal.4th 627 [101 Cal.Rptr.2d 718, 12 P.3d 1125] (Aas): “Formerly, after a builder had completed a structure and the purchaser had accepted it, the builder was not liable to a third party for damages suffered because of the work’s condition, even though the builder was negligent. (E.g., Fanjoy v. Seales (1865) 29 Cal. 243, 249-250; see also Hale v. Depaoli [(1948)] 33 Cal.2d 228, 230 [201 P.2d 1] [reviewing the former law].) The purchaser, of course, had remedies against the builder in contract and warranty. But injured third parties had no clear remedy until we, following the trend that began with MacPherson v. Buick Motor Co. (1916) 217 N.Y 382 [111 N.E. 1050], qualified the general rule exonerating manufacturers from third party claims with an exception applicable whenever `”the nature of a [manufactured] thing is such that it is reasonably certain to place life and limb in peril when negligently made….”‘ (Kalash v. Los Angeles Ladder Co. (1934) 1 Cal.2d 229, 231-232 [34 P.2d 481], quoting MacPherson v. Buick Motor Co., supra, 111 N.E. 1050, 1053.) Having already held that the manufacturers of defective ladders [citation], elevators [citation], and tires [citation] could be liable to persons not in contractual privity with them yet foreseeably injured by their products, we easily applied the same rule to someone responsible for part of a house, i.e., a defective railing (Hale v. Depaoli, at pp. 230-232).
[575] “We first recognized a remedy in the law of negligence for construction defects causing property damage, as opposed to personal injury, in Stewart v. Cox [(1961)] 55 Cal.2d 857 [13 Cal.Rptr. 521, 362 P.2d 345]. There, we upheld a homeowner’s judgment against a subcontractor who had negligently applied concrete to the inside of a swimming pool, thereby causing the release of water that damaged the pool, lot and house. In our opinion we noted, and seemingly were influenced by, the `”decisions … plac[ing] building contractors on the same footing as sellers of goods, and … [holding] them to the general standard of reasonable care for the protection of anyone who may foreseeably be endangered by the negligence, even after acceptance of the work.”‘ (Id. at p. 862, quoting Prosser, Torts (2d ed. 1955) pp. 517-519.)” (Aas, supra, 24 Cal.4th at p. 637.)
The court in Stewart applied the Biakanja factors to determine the scope of the duty of care: “Here it was obvious that the pool for which Cox provided the gunite work was intended for the plaintiffs and that property damage to them — and possibly to some of their neighbors — was foreseeable in the event the work was so negligently done as to permit water to escape. It is clear that the transaction between [the pool subcontractor] and Cox was intended to specially affect plaintiffs. There is no doubt that plaintiffs suffered serious damage, and the court found, supported by ample evidence, that the injury was caused by Cox’s negligence. Under all the circumstances Cox should not be exempted from liability if negligence on his part was the proximate cause of the damage to plaintiffs.” (Stewart v. Cox, supra, 55 Cal.2d at p. 863 (Stewart).)
Soon after, in Sabella v. Wisler (1963) 59 Cal.2d 21 [27 Cal.Rptr. 689, 377 P.2d 889], we held that a contractor was liable to a homeowner, although the homeowner’s identity was unknown at the time of construction. The contractor had built a house on inadequately compacted soil, causing major subsidence and property damage. Applying the Biakanja factors, we said that although “it appears that… this house was not constructed with the intention of ownership passing to these particular plaintiffs, the Sabellas are members of the class of prospective home buyers for which Wisler admittedly built the dwelling. Thus as a matter of legal effect the home may be considered to have been intended for the plaintiffs, and Wisler owed them a duty of care in construction. (See Prosser, Torts (2d ed. 1955) § 36, pp. 166-168.) It is apparent that harm was foreseeable to prospective owners when the home was constructed upon the inadequately compacted earth in the lot, and it is undisputed that the Sabellas’ home was seriously damaged. Also, there was found to be a close connection between the negligent elements of workmanship for which defendant contractor must be held responsible … and the injury suffered.” (Sabella, at p. 28.)
[576] Courts have applied these third party liability principles to architects. In Montijo v. Swift (1963) 219 Cal.App.2d 351 [33 Cal.Rptr. 133], the plaintiff sued an architect after falling and injuring herself on a stairway at a bus depot that she alleged had been negligently designed with an inadequate handrail. Relying in part on Stewart, supra, 55 Cal.2d 857, and Hale v. Depaoli, supra, 33 Cal.3d 228, the court said: “Under the existing status of the law, an architect who plans and supervises construction work, as an independent contractor, is under a duty to exercise ordinary care in the course thereof for the protection of any person who foreseeably and with reasonable certainty may be injured by his failure to do so, even though such injury may occur after his work has been accepted by the person engaging his services.” (Montijo, at p. 353.) Similarly, in Mallow v. Tucker, Sadler & Bennett, Architects etc., Inc. (1966) 245 Cal.App.2d 700 [54 Cal.Rptr. 174], the court upheld an architect’s liability to a construction worker where the architect’s plans negligently failed to indicate the location of underground high-voltage transmission lines, resulting in the worker’s electrocution. (Id. at pp. 702-703.)
Architect liability to third parties has not been confined to personal injury; it also extends to property damage. The Court of Appeal in Cooper v. Jevne (1976) 56 Cal.App.3d 860 [128 Cal.Rptr. 724], perhaps the case most similar to the one before us, recognized such liability to condominium purchasers where an architectural firm “prepared and furnished to the builder-seller … architectural drawings and plans and specifications for the construction and other improvements within the … project and acted as supervising architects in the construction of the buildings within the project.” (Id. at p. 867.) Applying the Biakanja factors, Cooper held on demurrer that “the architects’ duty of reasonable care in the performance of their professional services is logically owed to those who purchased the allegedly defectively designed and built condominiums…. The architects must have known that the condominiums they designed and whose construction they supervised were built by [the builder-seller] for sale to the public and that purchasers of these condominiums would be the ones who would suffer economically, if not bodily, from any negligence by the architects in the performance of their professional services.” (Id. at p. 869.)
Similarly, in Huang v. Garner (1984) 157 Cal.App.3d 404 [203 Cal.Rptr. 800], the Court of Appeal overturned a nonsuit in an action by a property owner against a building designer and civil engineer for defective design, including insufficient fire retardation walls, that violated building code standards. (Id. at pp. 411-415.) The court took as a given that design professionals could be held liable to third parties for defective designs causing property damage and economic loss; the only issue was whether negligence had to be proven by expert testimony or could be established by showing departure from then Uniform Building Code requirements as negligence per se. (Huang [577] at pp. 411-414.) In Huber, Hunt & Nichols, Inc. v. Moore (1977) 67 Cal.App.3d 278 [136 Cal.Rptr. 603], the court said it is “now well settled that … the architect may be sued for negligence in the preparations of plans and specifications either by his client or by third persons….” (Id. at p. 299.)
B.
(3) The Association argues that the general principle that an architect may be sued in negligence by a future homeowner absent privity is also recognized by statute. The Right to Repair Act establishes a set of building standards for new residential construction and provides that builders and other entities “shall … be liable for” violation of those standards “[i]n any action seeking recovery of damages arising out of” such construction. (Civ. Code, § 896; see id., § 936; all undesignated subsequent statutory references are to this code.) Section 896 states that the deficiencies for which builders and other entities are liable include “the residential construction, design, specifications, surveying, planning, supervision, testing, or observation of construction” of a dwelling unit. The Association points to section 936, which provides in part: “Each and every provision of the other chapters of this title apply to general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals to the extent that the general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals caused, in whole or in part, a violation of a particular standard as the result of a negligent act or omission or a breach of contract. In addition to the affirmative defenses set forth in Section 945.5, a general contractor, subcontractor, material supplier, design professional, individual product manufacturer, or other entity may also offer common law and contractual defenses as applicable to any claimed violation of a standard.” (Italics added.) Section 937 makes clear that the term “design professionals” includes “architects and architectural firms.”
The Court of Appeal, relying on legislative history, concluded that the Right to Repair Act is “dispositive of the scope of duty” owed by defendants to the homeowners in this case. Defendants make several arguments against this position. First, they observe that whereas the act applies to “new residential units,” the residential units in the Project were initially rented as apartments. Second, defendants contend that even if the Right to Repair Act applies to this case, it does not support imposing a duty of care toward the Association’s members greater than the duty imposed at common law. Highlighting the portion of section 936 that preserves “common law … defenses,” defendants argue that under common law principles of duty articulated by this court, a design professional owes no duty of care to homeowners in the circumstances of this case. Defendants further rely on the established principle that “`”[a] statute will be construed in light of common [578] law decisions, unless its language `”clearly and unequivocally discloses an intention to depart from, alter, or abrogate the common-law rule concerning a particular subject matter….”‘”‘” (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].) According to defendants, the Legislature’s limited purpose in enacting the Right to Repair Act in 2002 was to abrogate the “economic loss rule” affirmed in Aas, supra, 24 Cal.4th 627, 636 (see Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1202 [86 Cal.Rptr.3d 196] (Greystone)), not to otherwise create new tort duties.
We need not decide whether the Right to Repair Act is itself dispositive of the issue before us. Assuming defendants are correct that the existence of a common law duty of care is required to maintain a negligence action under the statute, such a duty exists under the facts alleged here. This conclusion follows from an application ofBiakanja and Bily, as we now explain.
III.
As noted, Biakanja set forth a list of factors that inform whether a duty of care exists between a plaintiff and a defendant in the absence of privity: “the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.” (Biakanja, supra,49 Cal.2d at p. 650.) Although the application of these factors necessarily depends on the circumstances of each case, it is possible to derive general rules that govern common scenarios. An example is our decision in Bily limiting the duty of care owed by auditing firms to nonclient third parties. We begin here with a review of Bily, whose reasoning provides a useful point of comparison. We then discuss the key considerations that counsel in favor of recognizing a duty of care that design professionals owe to future homeowners in circumstances like those alleged in plaintiff’s complaint.
A.
Bily involved a suit brought by investors in a computer company against the accounting firm that the company had hired to conduct an audit and issue audit reports and financial statements. The plaintiffs claimed that the accounting firm, Arthur Young & Company, had committed negligence in conducting the audit and reporting a $69,000 operating profit rather than the company’s actual loss of more than $3 million. The computer company eventually filed for bankruptcy, and its investors lost money. They sued, claiming injury from reliance on Arthur Young’s allegedly negligent audit. (Bily, supra, 3 Cal.4th at pp. 377-379.)
[579] We held that an auditor generally owes no duty of care to its client’s investors. (Bily, supra, 3 Cal.4th at p. 407.) In so holding, we recognized the important “`”public watchdog” function'” of auditors (id. at p. 383) but sought to set a reasonable limit on their potential liability for professional negligence given the vast range of foreseeable third party users of audit reports. “Viewing the problem … in light of the [Biakanja] factors,” the court in Bily focused on “three central concerns.” (Id. at p. 398.)
First, “[g]iven the secondary `watchdog’ role of the auditor, the complexity of the professional opinions rendered in audit reports, and the difficult and potentially tenuous causal relationships between audit reports and economic losses from investment and credit decisions, the auditor exposed to negligence claims from all foreseeable third parties faces potential liability far out of proportion to its fault….” (Bily, supra, 3 Cal.4th at p. 398.) In elaborating on this concern, the court observed that “audits are performed in a client-controlled environment.” (Id. at p. 399.) The client “necessarily furnishes the information base for the audit,” “has interests in the audit that may not be consonant with those of the public,” and “predominates in the dissemination of the audit report.” (Id. at pp. 399-400.) “Thus, regardless of the efforts of the auditor, the client retains effective primary control of the financial reporting process.” (Id. at p. 400.)
In addition, the court noted a mismatch between the auditor’s “secondary” role in the financial reporting process and the “primary” role attributed to the auditor as the cause of economic loss in a negligence suit by a third party. (Bily, supra, 3 Cal.4th at p. 400.) Because “the auditor may never have been aware of the existence, let alone the nature or scope, of the third party transaction that resulted in the claim” (ibid.), and because “the ultimate decision to lend or invest is often based on numerous business factors that have little to do with the audit report,” the auditor’s conduct lacks a sufficiently “`close connection'” to the loss of loaned or invested funds to justify recognition of a duty of care to third parties (id. at p. 401). In this context, “the spectre of multibillion-dollar professional liability … is distinctly out of proportion to: (1) the fault of the auditor …; and (2) the connection between the auditor’s conduct and the third party’s injury….” (Bily, at p. 402.)
Second, Bily emphasized that unlike ordinary consumers in product liability cases, “the generally more sophisticated class of plaintiffs in auditor liability cases (e.g., business lenders and investors) permits the effective use of contract rather than tort liability to control and adjust the relevant risks through `private ordering’….” (Bily, supra, 3 Cal.4th at p. 398.) “For example, a third party might expend its own resources to verify the client’s financial statements or selected portions of them that were particularly [580] material to its transaction with the client. Or it might commission its own audit or investigation, thus establishing privity between itself and an auditor or investigator to whom it could look for protection. In addition, it might bargain with the client for special security or improved terms in a credit or investment transaction. Finally, the third party could … insist[] that an audit be conducted on its behalf or establish[] direct communications with the auditor with respect to its transaction with the client.” (Id. at p. 403.) “As a matter of economic and social policy, third parties should be encouraged to rely on their own prudence, diligence, and contracting power, as well as other informational tools. This kind of self-reliance promotes sound investment and credit practices and discourages the careless use of monetary resources. If, instead, third parties are simply permitted to recover from the auditor for mistakes in the client’s financial statements, the auditor becomes, in effect, an insurer of not only the financial statements, but of bad loans and investments in general.” (Ibid.)
Third, Bily expressed skepticism that exposing auditors to third party negligence suits would improve the quality of the audits. (Bily, supra, 3 Cal.4th at pp. 404-405.) “In view of the inherent dependence of the auditor on the client and the labor-intensive nature of auditing, we doubt whether audits can be done in ways that would yield significantly greater accuracy without disadvantages. [Citation.] Auditors may rationally respond to increased liability by simply reducing audit services in fledgling industries where the business failure rate is high, reasoning that they will inevitably be singled out and sued when their client goes into bankruptcy regardless of the care or detail of their audits.” (Id. at p. 404.)
Notably, Bily did not categorically hold that auditors never owe a duty of care to third parties. Instead, Bily limited the duty to a “narrow class of persons who, although not clients, may reasonably come to receive and rely on an audit report and whose existence constitutes a risk of audit reporting that may fairly be imposed on the auditor. Such persons are specifically intended beneficiaries of the audit report who are known to the auditor and for whose benefit it renders the audit report.” (Bily, supra, 3 Cal.4th at pp. 406-407.) In situations where an auditor “clearly intended to undertake the responsibility of influencing particular business transactions involving third persons” with “sufficiently specific economic parameters to permit the [auditor] to assess the risk of moving forward,” liability for negligent misrepresentation may extend to persons “to whom or for whom the misrepresentations were made” so long as those persons have actually and justifiably relied on the auditor’s report. (Id. at pp. 408-409.)
[581] B.
(4) In many ways, the circumstances of the present case stand in contrast to the concerns in Bily that counseled against general recognition of an auditor’s duty of care to third parties. Here we focus on three considerations that drive the analysis and distinguish this case from Bily: (1) the closeness of the connection between defendants’ conduct and plaintiff’s injury; (2) the limited and wholly evident class of persons and transactions that defendants’ conduct was intended to affect; and (3) the absence of private ordering options that would more efficiently protect homeowners from design defects and their resulting harms. We then summarize this analysis in terms of the Biakanja factors, and we distinguish Weseloh, supra, 125 Cal.App.4th 152, the principal case on which defendants rely. As explained below, we hold that an architect owes a duty of care to future homeowners where the architect is a principal architect on the project — that is, the architect, in providing professional design services, is not subordinate to any other design professional — even if the architect does not actually build the project or exercise ultimate control over construction decisions.
1.
First, unlike the secondary role played by the auditor in the financial reporting process, defendants’ primary role in the design of the Project bears a “`close connection'” to the injury alleged by plaintiff. (Bily, supra, 3 Cal.4th at p. 401.) According to the complaint, defendants were the only architects on the Project. In that capacity, defendants “reviewed and approved the course of action where the specifications for the exterior windows … were changed to a design that inadequately prevented heat gain, which causes a seriously defective and nonfunctional condition that is also unhealthy.” Defendants also “recommended that the number of Z ducts [(ventilation ducts)] be reduced by a significant quantity, which is a major factor in the nonfunctional, unhealthy condition [of] the interior of the units.” The complaint alleges that these professional judgments were negligent and rendered the residential units unsafe and uninhabitable during certain periods of the year. Compared to “the connection between the auditor’s conduct and the third party’s injury (which will often be attenuated by unrelated business factors that underlie investment and credit decisions)” (Bily, at p. 402), the connection between defendants’ unique role as the design professionals on the Project and plaintiff’s damages resulting from negligent design is far more direct and immediate.
The trial court assigned dispositive significance to the fact that defendants did not go “beyond the typical role of an architect, which is to make recommendations to the owner,” and that “the final decision rested with the [582] owner….” Similarly, defendants contend that “they had no role in the actual construction. Instead, the developer, contractors, and subcontractors retained primary control over the construction process, as well as final say on how the plans were implemented.”
However, even if an architect does not actually build the project or make final decisions on construction, a property owner typically employs an architect in order to rely on the architect’s specialized training, technical expertise, and professional judgment. The Business and Professions Code defines “[t]he practice of architecture” as “offering or performing, or being in responsible control of, professional services which require the skills of an architect in the planning of sites, and the design, in whole or in part, of buildings, or groups of buildings and structures.” (Bus. & Prof. Code, § 5500.1, subd. (a); see id., § 5500.1, subd. (b) [providing a nonexhaustive list of “[a]rchitects’ professional services”].) The profession is licensed and regulated by the California Architects Board (id., §§ 5510, 5510.1, 5510.15, 5526), and the unlicensed or unauthorized practice of architecture is punishable as a misdemeanor (id., §§ 5536, 5536.1). In order to practice architecture, an applicant must pass two specialized exams, must demonstrate eight years of training and educational experience in architectural work, and must complete an internship program. (Id., §§ 5550, 5551, 5552, subd. (a); Cal. Code Regs., tit. 16, §§ 116-117.)
In this case, defendants were the principal architects on the Project. Among all the entities involved in the Project, defendants uniquely possessed architectural expertise. There is no suggestion that the owner or anyone else had special competence or exercised professional judgment on architectural issues such as adequate ventilation or code-compliant windows. Just as a lawyer cannot escape negligence liability to clearly intended third party beneficiaries on the ground that the client has the ultimate authority to follow or reject the lawyer’s advice (see, e.g.,Heyer v. Flaig (1969) 70 Cal.2d 223, 226 [74 Cal.Rptr. 225, 449 P.2d 161]; Lucas v. Hamm (1961) 56 Cal.2d 583, 588 [15 Cal.Rptr. 821, 364 P.2d 685]), so too an architect cannot escape such liability on the ground that the client makes the final decisions. An architect providing professional design services to a developer does not operate in a “client-controlled environment” comparable to the relationship between an auditor and its client. (Bily, supra, 3 Cal.4th at p. 399.) Whereas an auditor’s “client, of course, has interests in the audit that may not be consonant with those of the public” (ibid.), it would be patently inconsistent with public policy to hold that an architect’s failure to exercise due care in designing a building can be justified by client interests at odds with the interest of prospective homeowners in safety and habitability.
Were there any doubt as to defendants’ principal role in the design of the Project, it is dispelled by additional facts alleged here. According to the [583] complaint, defendants not only provided design services at the outset of the Project but also brought their expertise to bear on the implementation of their plans and specifications by doing weekly inspections at the construction site, monitoring contractor compliance with design plans, altering design requirements as issues arose, and advising the owner of any nonconforming work that should be rejected — all for a fee of more than $5 million. In other words, defendants applied their specialized skill and professional judgment throughout the construction process to ensure that it would proceed according to approved designs. The work defendants performed does not resemble “a broadly phrased professional opinion based on a necessarily confined examination” of client-provided information (Bily, supra, 3 Cal.4th at p. 403), nor did defendants act merely as “suppliers of information and evaluations for the use and benefit of others” (id. at p. 410). Instead, defendants played a lead role not only in designing the Project but also in implementing the Project design.
Nor do we find persuasive defendants’ claim that the connection between their conduct and plaintiff’s injury is “attenuated because … when the developer sold the units two years after construction, it was aware of, and concealed, the alleged defects.” This specific allegation, if true, may inform whether defendants’ conduct was the proximate cause of plaintiff’s injury. (See, e.g., Gonzalez v. Derrington(1961) 56 Cal.2d 130, 134 [14 Cal.Rptr. 1, 363 P.2d 1] [“independent, intervening cause” may preclude finding of proximate cause]; 6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 1214, pp. 590-591.) It also may give rise to a claim of equitable indemnity by defendants against the developer. (See Evangelatos v. Superior Court (1988) 44 Cal.3d 1188, 1197-1198 [246 Cal.Rptr. 629, 753 P.2d 585];Greystone, supra, 168 Cal.App.4th at p. 1208.) There is no reason to think in this case or in general that the developer and other major players have “left the scene” via bankruptcy, as is often the case with auditor liability suits. (Bily, supra, 3 Cal.4th at p. 400.) But because the developer’s alleged misdeeds are themselves derivative of defendants’ allegedly negligent conduct, they do not diminish the closeness of the connection between defendants’ conduct and plaintiff’s injury for purposes of determining the existence of a duty of care.
2.
Second, recognizing that an architect who is a principal provider of professional design services on a residential building project owes a duty of care to future homeowners does not raise the prospect of “`liability in an indeterminate amount for an indeterminate time to an indeterminate class.'” (Bily, supra, 3 Cal.4th at p. 385,quoting Ultramares Corp. v. Touche (N.Y. 1931) 255 N.Y. 170 [174 N.E. 441, 444].) As the complaint here alleges, defendants engaged in work on the Project with the knowledge that the [584] finished construction would be sold as condominiums and used as residences. There was no uncertainty, as there was in Bily, as to “the existence, let alone the nature or scope, of the third party transaction that resulted in the claim.” (Bily, supra, 3 Cal.4th at p. 400.) Defendants’ work on the Project “was intended to affect the plaintiff,” and “the `end and aim’ of the transaction was to provide” safe and habitable residences for future homeowners, a specific, foreseeable, and well-defined class. (Biakanja, supra, 49 Cal.2d at p. 650.) There is no “spectre of vast numbers of suits and limitless financial exposure” in this case. (Bily, at p. 400.) Instead, defendants “clearly intended to undertake the responsibility of influencing particular business transactions [(i.e., condominium purchases)] involving third persons [(i.e., prospective homeowners)]” (id. at p. 408) and could therefore “ascertain the potential scope of its liability and make rational decisions regarding the undertaking” (id. at p. 409). Further, as noted, defendants can limit their liability in proportion to fault through an action for equitable indemnification.
Defendants point to a provision in the contract with the developer that expressly disclaims the existence of any “third-party beneficiary of the obligations contained in the Agreement.” But we have never held that third party beneficiary status is a prerequisite to alleging negligence. In Bily, we noted only that third party beneficiaries “may under appropriate circumstances possess the rights of parties to the contract” (Bily, supra, 3 Cal.4th at p. 406, fn. 16), not that the lack of such status precludes liability in tort. If anything, the contract provision on which defendants rely “only serves to emphasize the fact that [defendants] were more than well aware that future homeowners would necessarily be affected by the work that they performed,” as the Court of Appeal observed.
3.
Third, the prospect of private ordering as an alternative to negligence liability is far less compelling here than in Bily. Whereas “[i]nvestors, creditors, and others who read and rely on audit reports and financial statements are not the equivalent of ordinary consumers” because “they often possess considerable sophistication in analyzing financial information and are aware from training and experience of the limits of an audit report `product,'” the average home buyer is more akin to “the `presumptively powerless consumer’ in product liability cases.” (Bily, supra, 3 Cal.4th at p. 403.) The typical home buyer “`clearly relies on the skill of the developer and on its implied representation that the house will be erected in reasonably workmanlike manner and will be reasonably fit for habitation. He has no architect or other professional adviser of his own, he has no real competency to inspect on his own, his actual examination is, in the nature of things, largely superficial, and his opportunity for obtaining meaningful protective changes [585] in the conveyancing documents prepared by the builder vendor is negligible.'” (Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 228 [74 Cal.Rptr. 749] (Kriegler).) As Chief Justice Traynor said for the court in Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850 [73 Cal.Rptr. 369, 447 P.2d 609], “the usual buyer of a home is ill-equipped with experience or financial means to discern … structural defects. [Citation.] Moreover a home is not only a major investment for the usual buyer but also the only shelter he has. Hence it becomes doubly important to protect him against structural defects that could prove beyond his capacity to remedy.” (Id. at p. 867.)
Defendants contend that plaintiff has options for redress within the bounds of privity: Plaintiff may seek an assignment of the developer’s rights against defendants, or plaintiff may pursue its design defect claims against the developer, and the developer may in turn seek redress from defendants. But it is questionable whether this more attenuated form of liability will consistently provide adequate redress. More importantly, the chief interest of prospective homeowners is to avoid purchasing a defective home, not only to have adequate redress after the fact. The long-established common law rule holding architects as independent professionals directly accountable to third party homeowners is most likely to vindicate that interest.
Moreover, as we recognized in Bily, the sophisticated consumer of audit reports “might expend its own resources to verify the client’s financial statements or selected portions of them that were particularly material to its transaction with the client. Or it might commission its own audit or investigation, thus establishing privity between itself and an auditor or investigator to whom it could look for protection.” (Bily, supra,3 Cal.4th at p. 403.) But it is unrealistic to expect home buyers to take comparable measures. A liability rule that places the onus on home buyers to employ their own architects to fully investigate the structure and design of each home they might be interested in purchasing does not seem more efficient than a rule that makes the architects who designed the homes directly responsible to home buyers for exercising due care in the first place. This seems especially true in “today’s society” given the “mass production and sale of homes” (Kriegler, supra, 269 Cal.App.2d at p. 227), such as the 595-unit condominium project in this case.
4.
For the reasons above, we conclude that the allegations in the complaint are sufficient, if proven, to establish that defendants owed a duty of care to the homeowners who constitute the Association. Our conclusion, which coheres with a substantial body of case law (ante, at pp. 574-577), may be [586] summarized in terms of the Biakanja factors: (1) Defendants’ work was intended to benefit the homeowners living in the residential units that defendants designed and helped to construct. (2) It was foreseeable that these homeowners would be among the limited class of persons harmed by the negligently designed units. (3) Plaintiff’s members have suffered injury; the design defects have made their homes unsafe and uninhabitable during certain periods. (4) In light of the nature and extent of defendants’ role as the sole architects on the Project, there is a close connection between defendants’ conduct and the injury suffered. (5) Because of defendants’ unique and well-compensated role in the Project as well as their awareness that future homeowners would rely on their specialized expertise in designing safe and habitable homes, significant moral blame attaches to defendants’ conduct. (6) The policy of preventing future harm to homeowners reliant on architects’ specialized skills supports recognition of a duty of care. Options for private ordering are often unrealistic for typical homeowners, and no reason appears to favor homeowners as opposed to architects as efficient distributors of loss resulting from negligent design.
Defendants contend that the balance of Biakanja factors is no different in this case than in Weseloh, supra, 125 Cal.App.4th 152, where the court found no duty of care owed by a design engineer to the third party owner of commercial property. But the defendants in Weseloh played a materially different role in the construction project than defendants did here.
In Weseloh, a property owner (Weseloh) contracted with a general contractor (Wessel) to build an automobile dealership on the property. A subcontractor, Sierra Pacific Earth Retention Corporation (Sierra), built the retaining walls for the project. Sierra, in turn, enlisted Charles Randle, an employee of Owen Engineering Company (Owen), to design two retaining walls for a fee of $1,500 or $2,200. Neither Randle nor Owen had a contractual relationship with Weseloh, and neither supervised the construction of the retaining walls. At Sierra’s request, Randle and Owen inspected the retaining walls after construction. When a portion of the retaining walls failed, resulting in $6 million of property damage, Weseloh sued Wessel, Sierra, Randle and Owen. Weseloh entered into a settlement agreement with Wessel and Sierra, but the suits against Randle and Owen went forward. On summary judgment, the trial court concluded that Randle and Owen owed no duty to Weseloh, and the Court of Appeal affirmed. (See Weseloh, supra, 125 Cal.App.4th at pp. 158-162.)
As suggested by the size of their fee, the defendants in Weseloh had a limited role in the construction project. The “undisputed evidence” showed that “neither Randle nor Owen had a `role in the construction’ of the retaining walls….” (Weseloh, supra, 125 Cal.App.4th at p. 164.) In addition, [587] although “Randle was aware the property was owned by Weseloh,” the Court of Appeal found it significant that Randle and Owen provided their services to Sierra, another engineering firm. As the court observed, “the earth retention calculations prepared for Wessel … identified the preparer as [Sierra], not Randle or Owen. This evidence bolsters the position that Randle and Owen’s role in the project was to primarily benefit Sierra as the preparer of the calculations. To the extent Randle and Owen’s participation in the project would also benefit Wessel and the Weseloh plaintiffs, it was only through Sierra.” (Id.at p. 167; see id. at p. 171, fn. 5 [noting that Sierra paid $1.2 million of the alleged $6 million liability under the settlement agreement].)
The circumstances in this case are plainly different. Unlike Randle and Owen, whose work informed their client’s own exercise of technical expertise in preparing earth retention calculations, defendants here were the sole entities providing architectural services to the Project. They did not provide their specialized services to a client or other entity that in turn applied its own architectural expertise to the plans and specifications supplied by defendants. Moreover, defendants not only applied their expertise to designing the Project but further applied their expertise to ensure that construction would conform to approved designs. Weseloh, which expressly limited its holding to its facts (Weseloh, supra, 125 Cal.App.4th at p. 173), does not stand for the broad proposition that a design professional cannot be liable in negligence to third parties so long as it renders “professional advice and opinion” (id. at p. 169) without having ultimate decisionmaking authority. Instead, Weseloh merely suggests that an architect’s role in a project can be so minor and so subordinate to the role or judgment of other design professionals as to foreclose the architect’s liability in negligence to third parties.
Moreover, the Weseloh court, reviewing the case at the summary judgment stage, concluded that the plaintiffs had “failed to produce evidence showing how and the extent to which their damages were caused by the asserted design defects.” (Weseloh, supra, 125 Cal.App.4th at p. 168.) The court also noted the absence of evidence that “Sierra actually used Randle and Owen’s design without alteration in constructing the retaining walls.” (Ibid.) These observations regarding lack of causation not only informed Weseloh‘s duty analysis (see id. at pp. 168-169) but also provided an independent basis for granting summary judgment in the defendants’ favor. In the present case, which is before us on demurrer, no similar causation problem confronts us. According to the complaint, defendants approved the use of defective windows and designed a defective ventilation system, all of which created conditions that made the homes uninhabitable for portions of the year. The complaint sufficiently alleges the causal link between defendants’ negligence and plaintiff’s injury that was lacking in Weseloh.
[588] IV.
For the reasons above, we conclude that the trial court erred in sustaining defendants’ demurrer on the ground that they owed no duty of care to the Association’s members. Because the Court of Appeal correctly reversed the trial court’s judgment, we affirm the Court of Appeal’s judgment.
Cantil-Sakauye, C. J., Baxter, J., Werdegar, J., Chin, J., Corrigan, J., and Richman, J.,[*] concurred.
[*] Associate Justice, Court of Appeal, First Appellate District, Division Two, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Pacific Hills Homeowners Association v. Prun
[Architectural Control; Statute of Limitations] The 5 year statute of limitations under Code Civ. Pro. § 336 applies to both recorded restrictions as well as unrecorded restrictions such as architectural guidelines.
COUNSEL
Law Offices of Richard A. Tinnelly, Bruce R. Kermott, Aliso Viejo; Blackmar, Principe & Schmelter, Gerry C. Schmelter, San Diego, and Christina B. VonBehren, for Plaintiff and Appellant.
Law Office of Julie M. McCoy and Julie M. McCoy, Newport Beach, for Defendants and Appellants.
OPINION
Defendants Jon L. Prun and Linda L. Prun appeal from a judgment requiring them to reduce the height of or move a gate and a fence in the front of their residence that violates the height and setback requirements in the covenants, conditions, and restrictions and architectural guidelines adopted by plaintiff Pacific Hills Homeowners Association. They contend the action was not subject to a five-year statute of limitations in Code of Civil Procedure section 336, subdivision (b) (all further statutory references are to this code unless otherwise noted) as the court determined but was barred by the four-year statute of limitations in section 337.
They also assert that, in any event, the action was barred by laches and waiver, and the court erroneously excluded certain evidence of other nonconforming use. We disagree with each contention.
Plaintiff filed a cross-appeal claiming that portion of the judgment requiring it to pay for two-thirds of the cost of relocation of defendants’ gate upon satisfaction of certain conditions was erroneous. It did not address the substance of that issue, however, arguing that because defendants had not satisfied the conditions, its own appeal was moot. We decline plaintiffs request to clarify the effect of that part of the judgment.
Thus, we affirm the judgment.
FACTS
Defendants’ home is located in a planned community subject to a Declaration of Covenants, Conditions and Restrictions (CC & R’s) and governed by plaintiff. The CC & R’s allow plaintiff to adopt reasonable rules and incorporate them into the CC & R’s. The CC & R’s require “the prior written approval of the Architectural Committee” (committee) before construction of any improvement, including a “fence or wall” and also mandate submission of plans to the committee and its approval before construction can begin. Plaintiff also adopted Architectural Guidelines (guidelines) that limit fences to 6 feet in height unless they are within 20 feet of the front property line, in which case the maximum height is 3 feet.
In late 2000 defendants decided to erect a mechanical gate, connected to a fence and pilasters, across their driveway. Jon testified they reviewed the [1561] copy of the CC & R’s and guidelines they received when they purchased the home and found no mention of setbacks. Jon also testified that after this action was filed he noticed that the copy of the guidelines they received upon purchase of their home contained only odd-numbered pages; they were missing the page containing the setback requirements. (We note that the guidelines and amended guidelines in the record show the setback requirement was on odd-numbered pages.)
After reviewing those documents, Jon then called the property management company and asked about setbacks. Jon testified that Bill Scales, the Architectural Administrator, told him that neither plaintiff nor the City of Mission Viejo had setback requirements. According to Jon, Scales only said that color was critical and the gate should be of high quality. Scales assured him “there won’t be any problem” or “there shouldn’t be any problem” after Jon told him a professional contractor was installing the gate. Jon also testified Scales said he would fax the forms defendants needed for plaintiffs approval and that permission should take only a couple of weeks. Jon testified he understood the approval was “basically a formality.”
Scales testified he did not remember the call and would not have checked a city setback requirement for a homeowner because he had no copy of those codes.
In the meantime defendants started building the gate. When Scales learned of it he sent a letter informing them construction violated the CC & R’s because prior approval was required; he asked for plans to be submitted. In late November Jon completed the forms he had received from Scales and sent them both to him and to the committee; he did not enclose plans.
In January 2001, plaintiff sent a letter to defendants asking for plans. Defendants re-sent their application with a drawing that did not show the specifics of the gate as required by the CC & R’s. Consequently, plaintiff returned it stamped, “Disapproved as submitted” (capitalization omitted) with another request for defendants to “[s]ubmit clear drawings….” Defendants then did so, showing the gate within three feet of the front property line. In mid-February the committee denied approval of defendants’ proposed fence and gate because it did not comply with the setback requirements. But defendants had already completed the gate. [1562]
In late July and August 2001 plaintiff sent letters to defendants, first asking them to comply with the CC & R’s and then inviting them to attend a board meeting in October. Thereafter plaintiff sent a letter giving defendants a November deadline for them to move the gate to comply with the setback requirements and advising it would assess a $100 fine if they did not; plaintiff also invited them to a meeting in December to “discuss the situation.”
At some point plaintiff contacted the City of Mission Viejo advising it of the situation. In May 2002, the city sent written notice to defendants that their gate violated its setback requirements. Between November 2002 and January 2003, plaintiff sent four more letters assessing fines and inviting defendants to meetings, which they attended.
In March 2003, plaintiffs lawyer sent a letter to defendants, stating it was plaintiffs “last effort to resolve th[e] matter” and insisting that the gate be moved back. It gave defendants 10 days to advise whether or not they intended to comply; if not plaintiff would take legal action. Jon testified he called the lawyer and explained defendants'”side of the … story.” He also testified plaintiffs counsel told him he thought that sounded “logical” and “plausible”; he wanted to research the matter and said if he did not get back to defendants, they should “consider the matter closed.”
Thirteen months later in April 2004 a different lawyer sent a letter to defendants inviting them to submit the matter to alternative dispute resolution and advising that if they did not respond in 30 days, plaintiff “may authorize” filing of a lawsuit. When Jon called that lawyer he was told, “we’re going to make you move the gate.” Nothing happened until almost one year later, in March 2005, when plaintiffs lawyer sent another letter suggesting mediation.
When defendants did not mediate, in April 2005 plaintiff filed this action for breach of the CC & R’s, nuisance, and declaratory and injunctive relief. The injunction sought was based on violation of the setback requirements, not defendants’ failure to obtain prior approval of the project. The case went to trial only on the injunction cause of action.
The court found in favor of plaintiff. It ruled, in part, that the five-year statute of limitations in section 336, subdivision (b) applied and thus the action was filed timely. The court also found defendants had not proven their other affirmative defenses of estoppel, laches, or waiver. [1563]
The judgment ordered defendants to lower their fence, gates, and pilasters to a maximum of 3 feet, or, in the alternative, to set them back to at least 20 feet from the front property line. In that case, the height could be up to six feet. If defendants chose the latter alternative and gave plaintiff timely written notice of their decision, plaintiff would be required to pay two-thirds of the cost of the relocation. If defendants did not timely give notice, they had to pay the entire cost of the ordered corrections. If defendants gave such notice and plaintiff did not agree in writing to pay two-thirds of the cost, the injunction would dissolve and defendants would be allowed to keep the gates and fence as built.
DISCUSSION
1. Applicable Statute of Limitations
Plaintiff filed this action more than four years but less than five years after defendants erected the gate. Defendants contend that section 336, subdivision (b), which is a five-year statute of limitations, applies only to recorded documents, in this case, CC & R’s, and not to unrecorded rules and regulations or guidelines of homeowners associations such as are at issue here. We disagree.
Section 336, subdivision (b) provides for a five-year statute of limitations for “[a]n action for violation of a restriction, as defined in Section 784 of the Civil Code.” Civil Code section 784 states, “`Restriction,’ when used in a statute that incorporates this section by reference, means a limitation on, or provision affecting, the use of real property in a deed, declaration, or other instrument, whether in the form of a covenant, equitable servitude, condition subsequent, negative easement, or other form of restriction.”
Defendants maintain that, for this definition to apply, a restriction must be recorded. They advance several grounds for this assertion, including the plain language of the statute and its legislative history, the rule that statutes should be harmonized, the absence of the setback restriction from the recorded CC & R’s, and the principle of ejusdem generis. Based on our reading of the plain language of section 336, subdivision (b) and Civil Code section 784, we conclude section 336, subdivision (b) does not govern merely recorded restrictions but applies to unrecorded restrictions as well. [1564]
“`When interpreting statutes, “we follow the Legislature’s intent, as exhibited by the plain meaning of the actual words of the law” “`…'” giving them their usual and ordinary meaning and construing them in context. [Citation.] If the plain language of the statute is clear and unambiguous, our inquiry ends, and we need not embark on judicial construction. [Citations.] If the statutory language contains no ambiguity, the Legislature is presumed to have meant what it said, and the plain meaning of the statute governs.’ [Citation.]” (Stephens v. County of Tulare (2006) 38 Cal.4th 793, 801-802, 43 Cal. Rptr.3d 302, 134 P.3d 288.) This is so “`”`whatever may be thought of the wisdom, expediency, or policy of the act.'”‘ [Citations.]” (California Teachers Assn. v. Governing Bd. of Rialto Unified School Dist. (1997) 14 Cal.4th 627, 632, 59 Cal. Rptr.2d 671, 927 P.2d 1175; see also Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 733, 3 Cal.Rptr.3d 636, 74 P.3d 737.)
A restriction, as defined in Civil Code section 784, is a limitation on the use of real property, as set out in several specified types of documents, including covenants, equitable servitudes, conditions subsequent, and negative easements, with a catchall description at the end applying to any “other form of restriction.”
Nothing in the language states this last category of restriction must be recorded. The fact that all enumerated documents are generally recorded does not compel such an interpretation. Had that been the intent of the Legislature, it could have easily used the language any “other form of recorded restriction.”
But it did not, and it is not within our province to do so in the guise of interpretation, even if that seems like a more logical or better policy. If such was its intent, the Legislature has the ability and opportunity to amend the language to make this clear.
Because we determine the plain meaning of the statute based on its language, we do not resort to extrinsic aids to construe its meaning. (Beat Bank, SSB v. Arter & Hodden, LLP (2007) 42 Cal.4th 503, 508, 66 Cal.Rptr.3d 52, 167 P.3d 666.) Thus, we need not address defendants’ other arguments as to the meaning of the statutes.
2. Laches
Defendants also assert that plaintiffs claim is barred by laches. “`The defense of laches requires unreasonable delay plus either acquiescence in the [1564] act about which plaintiff complains or prejudice to the defendant resulting from the delay.’ [Citation.]” (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 68, 99 Cal.Rptr.2d 316, 5 P.3d 874.) Defendants argue plaintiffs more than four-year delay in filing the action was “patently unreasonable” and that the delay shows plaintiff acquiesced in defendants’ placement of the gate. It points to three 1-year periods in which plaintiff did virtually nothing with respect to defendants’ gate.
There is no question plaintiff delayed in enforcing the setback restriction. Despite the spin it tries to put on the facts, plaintiffs alleged “sheer volume” of attempts and “continued … efforts to bring [defendants] into compliance” do not explain those lengthy gaps in its contacts with defendants or its extended inactivity. We do not condone this course of conduct and in the right fact situation, which we do not define, such delays could support a finding of laches.
But we agree with the trial court that defendants cannot show prejudice. They began building the gate before they submitted an application for approval of their project and before the architectural committee got involved. The evidence showed construction was finished by as early as November 2000 and no later than February 2001. Thus, it would not have mattered whether plaintiff was diligent.
Nor, despite the delays, can defendants show plaintiff acquiesced. Plaintiff made its opposition to the gate known from the moment it was built, and it never changed its position or communicated to defendants it had changed its position. And, importantly, Jon testified that from February 2001 until the complaint was filed, he understood that plaintiff “appeared to want the gate moved.” Thus, the defense of laches must fail.
3. Waiver
Defendants also assert plaintiff waived its right to enforce the guidelines because it did not apply them fairly, reasonably, or uniformly. They contend plaintiff had the burden of proof to show it in fact did enforce the guidelines fairly, and the court erred in not requiring that plaintiff meet that burden but instead put the burden on defendants to prove an affirmative defense. Finally, defendants claim the court erred by excluding defense evidence that showed plaintiff had arbitrarily allowed a nonconforming use by another property owner. None of these arguments persuades.
“When a homeowners’ association seeks to enforce the provisions of its CCRs to compel an act by one of its member owners, it is incumbent upon it to show that it has followed its own standards and procedures prior to [1566] 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. [Citations.]” (Ironwood Owners Assn. IX v. Solomon (1986) 178 Cal.App.3d 766, 772, 224 Cal.Rptr. 18.) “The criteria for testing the reasonableness of an exercise of such a power by an owners’ association are (1) 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 (2) whether the power was exercised in a fair and nondiscriminatory manner. [Citations.]” (Laguna Royale Owners Assn. v. Darger (1981) 119 Cal. App.3d 670, 683-684, 174 Cal.Rptr. 136.)
Here there was evidence plaintiff followed its ordinary procedures in attempting to enforce the setback requirement. It sent letters demanding that defendants comply with the guidelines, invited defendants to meet with the board, imposed fines, and finally filed suit.
Defendants complain that their nextdoor neighbors, Anthony and Kathleen Garcia, built in violation of the guidelines but plaintiff did not sue them to compel compliance with the architectural rules. Thus, they conclude, plaintiff lost its right to enforce the restrictions as to defendants. The Garcias obtained plaintiffs approval to build pilasters within the 20-foot setback area. But during construction, which occurred six years before defendants’, they apparently built their pilasters six feet high in violation of the guidelines. Plaintiff was unaware that had occurred until defendants pointed it out during the pendency of this dispute.
At that point plaintiffs committee sent letters to the Garcias asking them to modify the pilasters to conform to the guidelines, and the committee and the management company discussed the violation. Plaintiff determined that the Garcias’ pilasters were “not as obtrusive as [defendants’] gate was.” It also concluded, as its expert, an architect and engineer, testified that the Garcias’ pilasters are only a “minor obstruction” and therefore not as dangerous, compared to defendants’ gate, which is a safety hazard.
Although this is not overwhelming evidence, it met plaintiffs burden of proof to show it did address the Garcias’ violation and did not act unreasonably or unfairly in not suing them as it did defendants. Thus, the court did not improperly shift the burden of proof to defendants’ to prove an affirmative defense,
“[E]nforcement of the restriction must be in good faith, not arbitrary or capricious, and by procedures which are fair and uniformly applied. [Citation.] The framework of reference, as the court made clear, is not the [1567] reasonableness specific to the objecting homeowner, but reasonableness as to the common interest development as a whole. [Citation.]” (Liebler v. Point Loma Tennis Club (1995) 40 Cal.App.4th 1600, 1610, 47 Cal. Rptr.2d 783.) The evidence shows plaintiff took into account the relative safety of the two different structures, thus evaluating them in light of the entire development, in deciding how to proceed.
Defendants argue they had evidence of another homeowner’s violation of the guidelines that would support their waiver argument but the court erroneously excluded it. But nothing in the record shows defendants made an offer of proof, as was their burden, nor does it give us any information about the particulars of the evidence such that we could determine whether it was error to exclude it. Magic Kitchen LLC v. Good Things Internal, Ltd. (2007) 153 Cal.App.4th 1144, 1164-1165, 63 Cal.Rptr.3d 713.)
4. Plaintiffs Appeal
Plaintiff filed, a cross-appeal, claiming the court abused its discretion in ordering it to pay for two-thirds of the cost of moving defendants’ gate. It maintains there was no evidence the cost of relocating the gate would “cost twice” the amount plaintiffs expert testified to. Plaintiff misstates the court’s decision.
In its tentative ruling the judge did note it was “very likely it will cost appreciably more than [the expert’s] estimate.” But its ruling was not based on evidence of the cost. The tentative stated it was because of “plaintiffs sloppiness in not pursuing this much more promptly….” Injunctions are based on equity (Syngenta Crop Protection, Inc. v. Helliker (2006) 138 Cal.App.4th 1135, 1166-1167, 42 Cal.Rptr.3d 191), and we see no abuse of discretion in the result the court fashioned. (See City of Vernon v. Central Basin Mun. Water Dist. (1999) 69 Cal. App.4th 508, 516, 81 Cal.Rptr.2d 650.)
Plaintiff asserts that its appeal “is apparently moot” because defendants did not timely elect to move the gate back at least 20 feet from the property line, and asks for a “clarification of the effect of the passage of [the] time lines” set out in the judgment. We decline to do so. There is nothing in the record to show what occurred after judgment was entered with respect to the gate. Nor do we give advisory opinions. (Coleman v. Department of Personnel Administration (1991) 52 Cal.3d 1102, 1126, 278 Cal.Rptr. 346, 805 P.2d 300.) [1568]
DISPOSITION
The judgment is affirmed. In the interests of justice, the parties shall bear their respective costs on appeal.
WE CONCUR: O’LEARY and FYBEL, JJ.
Berryman v. Merit Property Management, Inc.
[Association Records; Transfer Document Fees] An association’s managing agent is permitted to earn a profit on the fees it charges for providing property transfer documents.
Bramson, Plutzik, Mahler & Birkhaeuser, Alan R. Plutzik, Jennifer S. Rosenberg, Walnut Creek; Reich Radcliffe, Marc G. Reich, Newport Beach; Law Offices of Kyle Crenshaw and Kyle Crenshaw, Newport Beach for Plaintiffs and Appellants.
Nossaman, Guthner, Knox & Elliott, Veronica M. Gray, Irvine, James C. Powers, Los Angeles, and Brad B. Grabske, Irvine, for Defendant and Respondent.
OPINION
MOORE, J.
Plaintiffs appeal from a judgment entered after the trial court sustained defendants’ demurrer without leave to amend. Plaintiffs allege that defendant Merit Property Management, Inc., wrongfully charged certain fees in connection with the transfer of title for home purchases. We find the facts alleged fail to state a claim on which relief can be granted, and therefore the trial court properly sustained defendants’ demurrer. Because plaintiffs have failed to demonstrate that further amendment will cure the complaint’s deficiencies, the trial court did not abuse its discretion in denying further leave to amend, and we affirm.
I. FACTS
Merit Property Management, Inc. (Merit) is in the business of managing residential common interest developments, typically known as homeowner associations (associations). Some homeowners belong to more than one association, because their home resides in both a “master” and “sub” association. Associations enter into written contracts with Merit to provide management services.
In April 2004, plaintiffs William J, Berryman and Betty C. Berryman, as trustees of the Berryman Family Trust (collectively plaintiffs or the Berrymans) sold a home located in two associations managed by Merit. They allege that Merit charged them $100 in document fees and $450 in transfer fees ($225 for each association), one-half of which was paid by the buyers. These fees were not remitted to the associations, but retained by Merit.
In March 2005, plaintiffs filed a putative class and representative action against Merit, several other entities that appear to be related, and Doe defendants. Alleging nine separate causes of action, the gravamen of the [1549] complaint was that Merit wrongfully charged homeowners such as the Berrymans’ document and transfer fees upon the purchase or sale of their residence. Plaintiffs alleged these fees were in excess of those permitted by statute, specifically Civil Code section 1368 (subsequent statutory references, unless specified, are to the Civil Code.)
The complaint thus alleged Merit had violated section 1368 and was liable under any number of theories, including violation of Business and Professions Code section 17200, et seq. (the Unfair Competition Law or UCL), section 1750, et seq. (the Consumer Legal Remedies Act or CLRA), money had and received, breach of fiduciary duty and constructive fraud, negligence and negligence per se, and several equitable claims. Plaintiffs also sought class certification.
Merit filed a demurrer and motion to strike, but on the day before the hearing was set plaintiffs filed a first amended complaint. The first amended complaint again cited section 1368, asserting this limited the amount Merit could charge. The same nine causes of action were alleged. Merit again demurred and the trial court sustained the demurrer with leave to amend.
Plaintiffs then filed a second amended complaint (SAC), alleging the same nine causes of action. The gravamen of the complaint was also the same. With regard to the document fees, plaintiffs alleged that Merit routinely charged sellers for documents that had not been requested, regardless of whether Merit actually provided them. With regard to the transfer fees, plaintiffs alleged the fee of $225 per association was improper because it was not authorized by statute or by the contract between Merit and the association. Plaintiffs further alleged that Merit concealed the true nature and amount of these fees, both with regards to the homeowners to whom they were charged and to the associations.
Again Merit demurred, and this time the trial court sustained the demurrer without further leave to amend, entering judgment in Merit’s favor on December 27, 2005. Plaintiffs filed a motion for reconsideration, attaching their proposed third amended complaint, which deleted all references to section 1368. The court denied reconsideration and entered an amended judgment in favor of Merit. Plaintiffs now appeal the court’s ruling sustaining the demurrer to the SAC. They argue it properly states a cause of action, or in the alternative, that they should be permitted another opportunity to amend the complaint. [1550]
II. DISCUSSION
A. Standard of Review
“In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) We review the trial court’s decision de novo. (McCall v. PacifiCare of Cal, Inc. (2001) 25 Cal.4th 412, 415, 106 Cal.Rptr.2d 271, 21 P.3d 1189.)
B. The Underlying Statutory Scheme
The Davis-Stirling Common Interest Development Act (the Act) (§ 1350 et seq.) governs homeowner associations. The Act “consolidated the statutory law governing condominiums and other common interest developments…. Common interest developments are required to be managed by a homeowners association (§ 1363, subd. (a)), defined as `a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development’ (§ 1351, subd. (a)), which homeowners are generally mandated to join [Citation.]” (Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 81, 14 Cal.Rptr.3d 67, 90 P.3d 1223, fn. omitted.)
Associations may hire managing agents to conduct day-to-day operations. (§§ 1363.1, 1363.2.) A managing agent is not a full-time employee of the association, but “is a person or entity who, for compensation or in expectation of compensation, exercises control over the assets of a common interest development.” (§ 1363.1, subd. (b).)
One task that managing agents may perform is facilitating the transfer of ownership when a residence in an association is sold. A seller is required to [1551] provide rather extensive documentation regarding the association, and at the seller’s request, the association must provide these documents to the seller within 10 days of a written request. (§ 1368, subds.(a), (b).) “The association may charge a reasonable fee for this service based upon the association’s actual cost to procure, prepare, and reproduce the requested items.” (§ 1368, subd. (b).)
With respect to the transfer of title, section 1368, subdivision (c)(1) states, in relevant part, that “neither an association nor a community service organization or similar entity may impose or collect any assessment, penalty, or fee in connection with a transfer of title or any other interest except for the following: [¶] (A) An amount not to exceed the association’s actual costs to change its records….” In this case, plaintiffs are essentially arguing that Merit, like the “association” referred to in section 1368, cannot charge a fee greater than its actual cost to reproduce documents or to transfer title records.
C. The Brown Decision and Us Application
In 2005, this court decided Brown v. Professional Community Management, Inc. (2005) 127 Cal.App.4th 532, 25 Cal. Rptr.3d 617 (Brown). In that homeowner cross-complained against her association and its management company, alleging that the fees the management company charged for providing collection services to the association were illegal. The trial court had sustained the defendants’ demurrer to Brown’s complaint, which alleged that the fees violated section 1366.1, giving rise to claims under the CLRA and for negligence, among others. (Id. at p. 535, 25 Cal.Rptr.3d 617.)
The decision began by noting the language of section 1366.1, which states: “`An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.’ [Citation.]” (Brown, supra, 127 Cal.App.4th at p. 537, 25 Cal. Rptr.3d 617.) The court rejected Brown’s argument that this restriction also applied to management companies: “The statute prohibits an `association’ from charging fees or assessments in excess of the costs for which the fee or assessment is charged. As noted ante, an `association’ is a defined term under the Act, and the definition requires the `association’ to be a nonprofit entity. In contrast, the Act imposes separate duties on a managing agent. (See §§ 1363.1 & 1363.2.) And those statutory duties are owed to the `association’ and its board of directors, not to individual owners of separate property interests in the common interest development. (§§ 1363.1 & 1363.2.) Significantly, the Act does not require a managing agent to be a nonprofit entity. It is clear, both from the definitions in the Act and from the separately imposed duties, the Legislature meant `association,’ when it used that term, and it meant `managing agent,’ when it used that term.” (Id. at p. 538, 25 Cal.Rptr.3d 617.) [1552]
The same reasoning applies to the instant case. Like the language in section 1366.1, section 1368 statute permits an “association” to charge “a reasonable fee for this service based upon the association’s actual costs ….” (§ 1368, subd. (b).) Further, an “association” may charge a fee for transfer of title in “an amount not to exceed the association’s actual costs ….” (§ 1368, subd. (c)(1)(A).) These limitations, like those in section 1366.1, apply to the association, not its managing agent, for the same reasons.
The Brown court then went on to construe the statute: “Thus, we understand the section 1366.1 prohibition, which runs expressly against an `association,’ to mean, for example, that fees or assessments levied against homeowners for the purpose of defraying the cost of mowing the grass in the common areas, or of painting the association’s clubhouse, or of replacing the deck of the association’s swimming pool, or any other of the myriad of the association’s management and maintenance responsibilities, may not exceed the cost to the association for providing those services.” (Brown, supra, 127 Cal.App.4th at p. 538, 25 Cal.Rptr.3d 617.)
As the court noted, “The costs incurred by the association, for which it levies an assessment or charges a fee, necessarily include the fees and profit the vendor charges for its services. While section 1366.1 prohibits an association from marking up the incurred charge to generate a profit for itself, the vendor is not similarly restricted. Plaintiff would have it that no vendor selling its services to an association could charge a fee, or, indeed, continue in business as a profit-making enterprise. That cannot be the law.” (Brown, supra, 127 Cal.App.4th at p. 539, 25 Cal.Rptr.3d 617.)
The same logic applies to section 1368. As in Brown, an association’s “costs” for purposes of the statute include “the fees and profit the vendor charges for its services.” (Brown, supra, 127 Cal.App.4th at p. 539, 25 Cal.Rptr.3d 617.) As the court noted in Brown, the statutory language prevents associations from charging inflated fees for documents and for transfer of title and using those fees for other purposes; it does not constrain the amount a managing agent may charge for these services. “Competitive forces, not the statute, will constrain the vendors’ fees and charges.” (Ibid.) This is no different with respect to section 1368, and plaintiffs’ arguments to the contrary are entirely unpersuasive.[FN. 1] Indeed, there is no way we could logically reach a different conclusion without contradicting Brown, and as its holding stands on firm ground both logically and legally, we decline to do so. [1553]
D. The Gravamen of Plaintiffs’ Claims
Despite using slightly different language, each of plaintiffs’ nine causes of action is predicated on the notion that Merit’s practice of charging document and transfer fees is impermissible, based either on Merit’s contract with each association or on section 1368. If this fundamental assumption is untrue, plaintiffs’ claims cannot stand.
Throughout its briefs and in the court below, plaintiffs repeatedly stated that Merit’s charges are “unauthorized”—that is, not specifically permitted by statute or contract. The implication, however, that a for-profit business must have statutory or contractual authorization for providing a service to a third party and charging a fee for that service is fundamentally flawed. Indeed, it is up to plaintiffs to demonstrate why a statute or a contract prohibits Merit from doing so.
As discussed above, we reject plaintiffs’ assertion that section 1368 renders the document and transfer charges unlawful. In addition to relying on section 1368, plaintiffs also assert that the management contracts limit the amount Merit may charge for documents and transfer fees. No management contract is attached to the SAC, which alleges both that the contract does not permit Merit to charge such fees at all, but even if it did, “both the Management Contracts and Civil Code § 1368 limit MERIT’S charges to $15/hour for only the actual cost to the Client Associations.” The SAC also alleges that Merit’s charges for documents are limited to 15 cents per page for copying.
The problem with these allegations is that plaintiffs are not parties to the contract with Merit—the associations are. Even assuming the allegations are true, plaintiffs are at best incidental beneficiaries and have no standing to recover under the contract. (Southern Cal. Gas Co. v. ABC Construction Co. (1962) 204 Cal. App.2d 747, 750, 22 Cal.Rptr. 540.) By the same logic, plaintiffs cannot use the contracts to bootstrap liability under other theories, such as the UCL, CLRA or common law theories such as negligence. Permitting such recovery would completely destroy the principle that a third party cannot sue on a contract to which he or she is merely an incidental beneficiary.
As we address plaintiffs’ claims below, we shall try to prevent repeating these points. To the extent a cause of action relies on either violation of section 1368 or breach of the contracts between Merit and the associations, the claim cannot be maintained. [1554]
E. The UCL Claims
The UCL is codified in Business and Professions Code section 17200 et seq. The UCL prohibits any “unlawful, unfair or fraudulent business act or practice.” “Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.” (Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647, 58 Cal.Rptr.2d 89.) An act can be alleged to be any or all of the three prongs of the UCL—unlawful, unfair, or fraudulent.
1. The “Unlawful” Prong of the UCL
Under its “unlawful” prong, “the UCL borrows violations of other laws … and makes those unlawful practices actionable under the UCL.” (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1505, 82 Cal.Rptr.2d 368.) Thus, a violation of another law is a predicate for stating a cause of action under the UCL’s unlawful prong. In attempting to state a claim under this prong of the UCL, the SAC provides a laundry list of state and federal statutes Merit allegedly violated. These include theft by false pretenses (Pen.Code, § 484), federal mail and wire fraud (18 U.S.C. §§ 1341, 1343), breach of warranty of authority (§ 2342), and several parts of the Act (§§ 1363.1, 1368), and Business and Professions Code § 17500.
While purporting to incorporate its factual allegations by reference, the SAC nonetheless fails to plead facts to support its allegations that Merit has violated each of these statutes. For example, with respect to Penal Code section 484, we are unable to find factual allegations asserting reliance or false pretense; the allegation that the fees are “unauthorized” is a legal conclusion. With regard to mail and wire fraud, the SAC does not allege facts supporting a specific intent to defraud or use of the federal mail or telephone wires to do so.
With respect to the purported breach of the warranty of authority, plaintiffs assert this means that Merit warrants to sellers that it has the authority from its associations to impose document and transfer fees. The Restatement, however, defines such a breach as making a contract or representation on behalf of another whom he has no power to bind. (Rest.2d Agency, § 329.) The SAC alleges that the management contracts state Merit is to act on the association’s behalf with respect to transferring ownership and that such charges, which shall be “reasonable fees as allowed within the [C]ivil [C]ode” shall be charged to the owner. As the SAC expressly alleges that Merit has an agent’s authority in this matter, it fails to allege a violation of the breach of the warranty of authority. [1555]
With respect to section 1363.2, plaintiffs claim Merit violates this statute by retaining funds that belong to the associations. Yet there is nothing pled to support the implied assertion that the document and transfer fees belong to the associations, rather than to Merit for performing the service.
We have already rejected plaintiffs’ contention that Merit’s conduct violates section 1368, and we shall address the claim under the CLRA separately below.
2. The “Unfair” Prong of the UCL;
Under the UCL, “[a]n act or practice is unfair if the consumer injury is substantial, is not outweighed by any countervailing benefits to consumers or to competition, and is not an injury the consumers themselves could reasonably have avoided.” (Daugherty v. American Honda Motor Co., Inc. (2006) Cal.App.4th 824, 839.)
Plaintiffs argue they have sufficiently alleged a claim under this prong of the UCL by alleging: “Merit charges the Transfer Fee to sellers for purported services which neither its Management Agreements nor any other contract, law or rule allow it to charge sellers.” Plaintiffs further claim the fees exceed the amount permitted by the management contract and are retained by Merit rather than remitted to the associations.
As we discussed above (see section 11(B), ante) we are unaware of any statutory or case law that requires a for-profit business to point to a statute or contract that allows it to charge a fee for a service. The burden is on the plaintiffs to show why Merit was not permitted to do so. Further, as we also discussed, plaintiffs cannot bootstrap a claim for breach of contract—which, as incidental beneficiaries, they are not allowed to bring—onto a UCL claim.
Plaintiffs also argue that the court abused its discretion in sustaining the demurrer on the UCL claim, because demurrers on such claims are disfavored. In support of this assertion, plaintiffs cite Motors, Inc. v. Times Mirror Co. (1980) 102 Cal.App.3d 735, 740, 162 Cal.Rptr. 543 (Motors, Inc.). “The determination of whether a particular business practice is unfair necessarily involves an examination of its impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. In brief, the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim—a weighing process quite similar to the one enjoined on us by the law of nuisance. [Citations.]” The court then goes on to state: “While this process is complicated enough after a hearing in which the defendant has revealed the factors determining the utility of his conduct, it is really quite impossible if only the plaintiff has [1556] been heard from, as is the case when it is sought to decide the issue of unfairness on demurrer.” (Ibid.)
We do not take the statement in Motors, Inc. to mean that a special rule applies to demurrers in cases under the UCL. It simply reflects the general rule that questions of fact—such as whether the utility of the defendant’s conduct outweighed the gravity of the harm—cannot be decided on demurrer. If, however, as here, the facts as pled would not state a claim even if they were true, the demurrer may be sustained.[FN. 2] The facts pled here do not state a claim that as a result of any wrongful conduct by Merit, plaintiffs suffered a substantial, unavoidable injury.
3. The “Fraudulent” Prong of the UCL
To support their argument that the SAC adequately pleads that Merit’s behavior is fraudulent under the UCL, plaintiffs point to allegations that “when Merit obtains payment of Transfer and Document Fees through escrow upon the sale of a home. Merit does not disclose detailed listings or breakdowns of specific charges comprising its Transfer or Document Fees, and that it omits to break these out for sellers for the specific purpose of concealing from class members the nature of fees being charged.” Plaintiffs further allege that Merit fails to disclose the fees to the associations and their boards of directors “in the financial reports it provides.”
“Unlike common law fraud, a Business and Professions Code section 17200 violation can be shown even without allegations of actual deception, reasonable reliance and damage. Historically, the term `fraudulent,’ as used in the UCL, has required only a showing that members of the public are likely to be deceived. [Citation.]” (Daugherty v. American Honda Motor Co., Inc., supra, 144 Cal.App.4th at p. 838, 51 Cal.Rptr.3d 118.) The court noted, however, that it could not [1557] find that “a failure to disclose a fact one has no affirmative duty to disclose is `likely to deceive’ anyone within the meaning of the UCL.” (Ibid.)
This reasoning applies here. The SAC does not allege any affirmative duty to disclose a breakdown of its fees to sellers. And while Merit has a duty to disclose the state of an association’s financial status in the reports it provides to boards of directors, no duty is alleged to disclose Merit’s financial status. Document and transfer fees would not be reflected in association financial reports because the fees are paid to Merit, not the association.
The remaining cases plaintiffs cite each address affirmative misrepresentations through advertising, and are inapposite here. (See, e.g., Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 951, 119 Cal.Rptr.2d 296, 45 P.3d 243; Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 211, 197 Cal.Rptr. 783, 673 P.2d 660.) Absent a duty to disclose, the failure to do so does not support a claim under the fraudulent prong of the UCL.
F. Unjust Enrichment, Constructive Trust, Accounting
As pled in the SAC, none of these causes of action includes any factual allegations. Plaintiffs concede that each of these claims “are based on, and seek equitable relief for, the same conduct underlying the UCL claim.” Indeed, as the UCL provides only equitable relief, they would appear to be entirely duplicative of that claim. In any event, as the UCL claim does not state a cause of action, neither do any of these equitable claims.
G. The CLRA
The CLRA (§ 1750 et seq.) is a consumer protection statute. It enables a consumer to bring a class action on behalf of himself or herself and other consumers similarly situated if the consumer has suffered “any damage” from the use or employment of any of 23 enumerated acts or practices. (§§ 1780, subd. (a), 1781, subd. (a).) It is limited to transactions “intended to result or which results in the sale or lease of goods or services to any consumer….” (§ 1770, subd. (a).) Consumers in a CLRA class action may recover actual damages or a statutory minimum in addition to injunctive relief, restitution, attorney fees and any other relief. (§ 1780, subds.(a), (d).)
Plaintiffs allege three violations of the CLRA: 1) “Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which he or she does not have;” (§ 1770, subd. (a)(5)); 2) “Representing that a transaction confers [1558] or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law;” (§ 1770, subd. (a)(14)), and 3) “Representing that the subject of a transaction has been supplied in accordance with a previous representation when it has not.” (§ 1770, subd. (a)(16).) According to plaintiffs, these allegations all boil down to plaintiffs’ contention that “Merit misrepresented to sellers that they owed Merit the challenged fees.”
Merit argues that plaintiffs and the class they purport to represent are not “consumers” under the CLRA. The CLRA defines “consumer” as “an individual who seeks or acquires, by purchase or lease, any goods or services for personal, family, or household purposes.” (§ 1761, subd. (d).) It further defines “transaction” as an “agreement between a consumer and any other person, whether or not the agreement is a contract enforceable by action, and includes the making of, and the performance pursuant to, that agreement.” (§ 1761, subd. (e).)
Although it is a somewhat technical distinction, we agree with Merit that the CLRA does not include transactions such as obtaining documents and transferring title. According to the SAC, these matters, and the demand for fees in return, are made through escrow. Thus, the transaction does not involve the “sale or lease of goods or services to any consumer” as contemplated by the CLRA, and the SAC fails to state a cause of action.
H. Breach of Fiduciary Duty
Plaintiffs’ next claim is for breach of fiduciary duty. An association has a fiduciary relationship with its members. (Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d 642, 650-651, 191 Cal.Rptr. 209.) In an attempt to impute the associations’ fiduciary duty to Merit, plaintiffs allege an agency relationship. “Associations consented to and delegated to MERIT as their agent, and MERIT assumed responsibility for fulfilling such statutory and fiduciary duties.”
The allegation of a fiduciary relationship must be supported by either a contract, or a relationship that imposes it as a matter of law. (Committee on Children’s Television, Inc., v. General Foods Corp., supra, 35 Cal.3d at p. 221, 197 Cal.Rptr. 783, 673 P.2d 660.) The mere allegation that Merit assumed fiduciary duties to the individual homeowners is a legal conclusion, not a well-pled fact. Indeed, it appears from the SAC that Merit’s relationship with individual homeowners was merely commercial. Merit performed a service and charged a fee; nothing more is apparent.
Plaintiffs’ attempts to apply exceptions to the general rule that a fiduciary relationship requires a contract or imposition of that relationship as a matter [1559] of law are unavailing. The exceptions they set forth simply do not apply here. (Cf. § 2343; Doctors’ Co. v. Superior Court (1989) 49 Cal.3d 39, 260 Cal.Rptr. 183, 775 P.2d 508; Casey v. U.S. Bank Nat, Assn. (2005) 127 Cal.App.4th 1138, 1144, 26 Cal.Rptr.3d 401.)
Plaintiffs’ theory of “aiding and abetting” is equally unpersuasive. “`Liability may … be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.’ [Citations.]” (Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1325-1326, 58 Cal.Rptr.2d 308.) The SAC has not alleged any wrongdoing on the part of the associations—indeed, it asserts they are entirely ignorant of Merit’s fees. There can be no claim for aiding and abetting without allegations that the associations are also wrongdoers.
I. Negligence and Negligence Per Se
The final two claims in the SAC are for negligence and negligence per se. The latter claim is based on Merit’s purported violation of section 1368, and as we have already noted, is legally without merit. As to the former claim, the SAC simply alleges: “In doing the acts of imposing and collecting Transfer Fees, MERIT owed a duty of care to Plaintiffs and other members of the class. MERIT breached that duty by charging and collecting illegal Transfer Fees.”
This allegation does not include facts, merely legal conclusions. Plaintiffs argue that because the association owes a fiduciary duty to its members, it also owes an ordinary duty of care, and therefore Merit does also. We fail to follow this logic, but to the extent it relies on the assumption that Merit assumed the associations’ fiduciary duty, we reject it. To the extent it relies on something else, it is waived for failure to fully develop the argument. (Kurinij v. Hanna & Morton (1997) 55 Cal.App.4th 853, 865, 64 Cal.Rptr.2d 324.)
J. Money Had and Received
In addition to the specific counts plaintiffs allege, they also plead a common count for money had and received. This claim incorporates prior facts by reference, and is based on the same underlying facts. “A common count is not a specific cause of action, however; rather, it is a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness, including that arising from an alleged duty to make restitution [1560] under an assumpsit theory. [Citations.] When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable. [Citations.]” (McBride v. Boughton (2004) 123 Cal. App.4th 379, 394-395, 20 Cal.Rptr.3d 115.) Thus, because this count must stand or fall on the viability of plaintiffs’ other claims, the demurrer was properly sustained.
K. Further Amendment
The burden of demonstrating that a complaint’s deficiencies can be cured through further amendment is “squarely on the plaintiff.” (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.) From reviewing plaintiffs’ proposed third amendment complaint and their arguments, we are unpersuaded that further amendment would lead to a viable complaint.
It appears from the history of this case that this lawsuit began under the false impression that section 1368 applied to management companies such as Merit, not merely to associations. Additionally, plaintiffs appeared to believe that they could maintain a claim for Merit’s alleged violation of its contracts with associations. Neither is true, but plaintiffs have repeatedly tried to plead around these matters.
The bottom line is that these facts—no matter how artfully they are pled—do not leave plaintiffs with any basis for a claim. They cannot cure these deficiencies by removing references to section 1368 or by pleading even more explicitly that Merit is breaching its contract with the associations. Once again, they ask for leave to plead that “no law, statute or contract permits Merit to impose those charges on sellers.” As we have repeatedly stated, it is up to plaintiffs to demonstrate why the charge is illegal, not for Merit to justify that it is legal for it to charge a fee for a service it provides.
We understand plaintiffs may find the total of $325 in charges an irksome part of the home resale process. They may believe those fees are out of line with market forces. Their remedy, then, is to persuade their association’s board of directors to find a management company that offers these services for less. If Merit realizes it is losing business because its fees are out of line with the marketplace, it will surely adjust its fees accordingly. Similarly, if they believe Merit is breaching its contract with the association by charging such fees, they can demand their board of directors seek redress from Merit directly. If they believe they were charged $100 for documents and never requested or received any documents whatsoever, they are free to bring a suit in small claims court to recover that amount. None of the factual allegations [1561] presented thus far, however, nor the proposed amendments to them, support the claims advanced here. The demurrer was properly sustained without further leave to amend.
III. DISPOSITION
The judgment is affirmed. Merit is entitled to its costs on appeal.
WE CONCUR: O’LEARY, Acting P.J., and ARONSON, J.
[FN. 1] We also reject plaintiffs’ assertion that Merit is advancing a theory under which section 1368 immunizes it from liability. Merit’s argument is that section 1368 does not create liability. Thus, while plaintiffs are free to sue Merit, in order to succeed, they must advance some viable theory of recovery. That theory cannot be predicated on a statute which, as a matter of law, applies to associations and not to management companies.
[FN. 2] Moreover, the sweeping nature of claims under the unfairness prong has been called into question in recent years. Referencing the balancing test adopted in Motors, Inc., the court noted: “We believe these definitions are too amorphous and provide too little guidance to courts and businesses. Vague references to `public policy,’ for example, provide little real guidance.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 185, 83 Cal.Rptr.2d 548, 973 P.2d 527 (Cel-Tech).) The court went on to narrow the scope of claims of unfair practices under the UCL in cases in which a competitor alleged anticompetitive behavior. (Id. at p. 187, 83 Cal.Rptr.2d 548, 973 P.2d 527.)
Subsequent Court of Appeal decisions have taken note of this decision in other contexts. “Cel-Tech,however, may signal a narrower interpretation of the prohibition of unfair acts or practices in all unfair competition actions and provides reason for caution in relying on the broad language in earlier decisions that the court found to be `too amorphous.’ Moreover, where a claim of an unfair act or practice is predicated on public policy, we read Cel-Tech to require that the public policy which is a predicate to the action must be ‘tethered’ to specific constitutional, statutory or regulatory provisions.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 854, 128 Cal.Rptr.2d 389, fn omitted.)
Liebler v. Point Loma Tennis Club
[Operating Rules; Non-Resident Use] A HOA may create and enforce a rule excluding non-resident owners from use of the HOA’s common area recreational facilities.
Alan L. Williams for Plaintiff and Appellant.
Genson, Even, Crandall & Wade and Kurt A. Moll for Defendant and Respondent.
[1604] OPINION
NARES, J.-
Kenneth Liebler (Liebler) appeals a judgment in favor of defendant Point Loma Tennis Club Community Corporation (PLTC), following a determination the PLTC declaration of covenants, conditions and restrictions did grant PLTC the authority to enact rules which exclude Liebler, a nonresident owner, from using the common area recreational facilities.
Liebler contends (1) the PLTC covenants, conditions and restrictions do not grant PLTC such a power of exclusion; (2) the rules and regulations which exclude nonresident owners from common area recreational facilities are unreasonable; and (3) the covenants, conditions and restrictions also do not grant PLTC the power to impose fines for violations. We affirm the judgment.
FACTS [FN. 1] AND PROCEDURE
Liebler purchased a condominium unit[FN. 2] in the Point Loma Tennis Club in June 1984. When Liebler purchased his unit, he received a copy of the recorded PLTC declaration of covenants, conditions and restrictions (CC&Rs) and the PLTC rules and regulations.
The CC&Rs (1) establish ownership of a unit as the basis for holding a membership in the PLTC (§ 2.1) and (2) repeatedly set out the duty of the corporation to establish necessary rules for use and occupancy of the property (§ 3.2.9) and the common areas as well (§ 7.8.2).
Since 1977 (some seven years before Liebler acquired his unit), the PLTC rules have specifically excluded nonresident owners from use of the common area recreational facilities. In addition, the CC&Rs contain a covenant specifically prohibiting the severance and separate conveyance of an owner’s interest in his unit from his undivided interest in the common area. Liebler never lived in the unit, but leased it to his daughter and then to a succession of tenants.
At the time Liebler purchased his unit, he and his daughter registered and obtained identification cards for use of the PLTC recreational facilities. After Liebler’s daughter moved out and Liebler rented the unit to others, he [1605] continued to use the recreational facilities, in particular, the tennis courts. The Sullivans, Liebler’s tenants at the time of the lawsuit, also used the recreational facilities.
Shortly after Liebler leased his unit to the Sullivans, he amended the lease agreement to include a statement that “Both parties confirm that for all purposes, the tenant and landlord share the premises as cotenants.” No evidence was introduced showing Liebler ever occupied the unit or shared it with the Sullivans in any way other than by continuing to use the common area recreational facilities.
Early in 1992, some homeowners asked the board of directors of the PLTC homeowners association (Board) to look into use of the tennis courts by nonresidents and others who “did not belong there.” In April a list was compiled of owners who held identification cards but whose addresses indicated they were not residents of PLTC. The Board then sent a letter to each of these nonresident owners asking for the return of their cards, reminding them of the rule requiring assignment of the use of the facilities to their tenants, and advising them that nonresident owners who continued to use the facilities would be asked to leave or fined.
All the nonresident owners except Liebler complied, either by returning their cards or, in some cases, reporting the cards as lost. Liebler responded with a hostile letter informing the Board he was a “registered resident” of his unit by the terms of his lease and he considered himself entitled to the privileges of a tenant as well as those of an owner. Liebler did not, however, provide the Board with a copy of the lease. Liebler later testified he did not live in the unit at the time he advised the Board that he was a “registered resident.” Liebler continued to use the PLTC tennis courts at will.
On May 12, 1992, the Board sent Liebler a notice of violation in an attempt to enforce the rule against use of the recreational facilities by nonresident owners. Liebler appeared before the PLTC grievance committee for a hearing on June 16, 1992. At the hearing, Liebler continued to insist he was entitled to use the recreational facilities based on the wording of his lease, but refused the committee’s request to view the lease itself.
After Liebler spoke to the committee, it considered the matter and recommended Liebler be fined $150 for past violations and be notified that future violations of the nonresident rule would incur additional fines. Liebler continued to use the facilities. PLTC continued to fine Liebler. Liebler has never paid any fines and PLTC has not taken legal action to attempt to collect them.
[1606] Liebler sued PLTC, seeking declaratory relief from the fines, and enforcement of equitable servitude by issuance of a temporary restraining order, and temporary and permanent injunctions against enforcement of the nonresident rule. Liebler also alleged breach of the covenant of enjoyment by PLTC, due to interference with Liebler’s claimed property right in the easement of enjoyment of the common recreational facilities.
After trial, the court determined the PLTC CC&Rs granted the Board the authority to create a rule excluding nonresident owners from use of the common recreational facilities. The court found the nonresident rule as enacted was reasonable and it had been reasonably enforced. The court made a partial ruling on the fines issue, finding the PLTC had the authority to impose fines on a member of the association, but declining to decide whether the fines were legally enforceable until an attempt was made to collect. Judgment was entered for PLTC.
STANDARD OF REVIEW
Liebler claims the CC&Rs do not provide for the rule excluding nonresident owners from use of the common areas, and also attacks the reasonableness of the rule in question. (1) It is clear that provisions restricting use and occupancy in recorded covenants governing a condominium project are “presumed to be reasonable and will be enforced uniformly against all residents of the common interest development unless the restriction is arbitrary, imposes burdens on the use of lands it affects that substantially outweigh the restriction’s benefits to the development’s residents, or violates a fundamental public policy.” (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 386). Rules made pursuant to recorded use restrictions are evaluated for their reasonableness in light of the interests of the residents as a whole, rather than the individual interests of a particular homeowner. (Ibid.)
DISCUSSION
I. Exclusion of Nonresident Owners From Common Areas
(2a) Liebler argues the provisions of article 8 of the PLTC CC&Rs create an easement of enjoyment in the common area to the benefit of a unit owner which cannot be abrogated by rules later adopted by the board of directors. Liebler points to specific portions of article 8 which provide:
“8. MEMBERS EASEMENTS OF ENJOYMENT IN THE COMMON AREA:
“The owners shall have the right and easement of enjoyment in and to the Common Area and such right and easement shall be appurtenant to and shall [1607] pass with the title to every assessed residential condominium subject to the following provisions:
“8.1 The right of the Corporation to limit the number of guests of members.
“8.2 The right of the Corporation to establish uniform rules and regulations pertaining to the use of the Common Area and the recreational facilities thereon.
“…. …. …. …. …. …. ….
“8.7 Any Member may delegate in accordance with the By-Laws, his right of enjoyment to the Common Area and facilities to the members of his family, his tenants or contract purchasers who reside on the Property.”
The rule to which Liebler objects is found in the rules and regulations of the PLTC as follows;[FN. 3]
“IV. RECREATIONAL AREA
“…. …. …. …. …. …. ….
“4.2 Use: The recreational facilities shall be used only by residents of PLTC and their guests. The right to use the facilities is appurtenant to the individual condominium unit and can not be separated from it (CC&R Section 8). Nonresident owners, whose units are rented or available for rent, do not have the use of the recreational facilities.”
Liebler’s argument is that by virtue of ownership, he gains an easement of enjoyment in the common area which he may continue to exercise until he transfers the actual title of the unit to a subsequent owner. He insists he is entitled to continue to use the common area so long as he owns the unit, and in addition, he may allow his tenants to also use the common area recreational facilities. He argues his right as an owner cannot be abridged by a rule that excludes nonresident owners from enjoyment of the recreational facilities.
Liebler relies primarily upon MaJor v. Miraverde Homeowners Assn. (1992) 7 Cal. App.4th 618, 625-626 [9 Cal. Rptr.2d 237], which held that [1608] similar rule impermissibly created two categories of members, terminating a right “originally granted by the CC&Rs to all members whether resident or not.” Although the present case also involves a dispute over use of tennis courts, there are significant legal and factual differences between the two. MaJor involved a completely physically disabled tenant who was an immediate family member of the owners, themselves former occupants, and the rule in question not only was promulgated long after their purchase, but appeared to have specifically singled out and targeted the owners for disparate treatment. (Id. at 621-622.)
The MaJor court itself noted the limits of its decision, which did not reach delegation of the right of enjoyment to a third party (MaJor v. Miraverde Homeowners Assn., supra, 7 Cal. App.4th at p. 626, fn. 1), or to the situation where, as here, a nonresident owner sought use of the tennis court both for himself and for a tenant. (Id. at p. 628, fn. 2.)
A further and central point distinguishing this case from MaJor, however, is the presence in the PLTC CC&Rs of a covenant specifically prohibiting severance and separate conveyance of an owner’s component interests in the private and common use areas. MaJor is silent as to whether the CC&Rs there contained such a provision, and the MaJor court never discussed and appears not to have contemplated the effect such a provision would have when read together with the rest of the CC&Rs. Here, however, the PLTC CC&R article 12.2 contains the following covenant:
“12. COVENANTS AGAINST PARTITION AND SEVERABILITY OF COMPONENT INTEREST:
“…. …. …. …. …. …. ….
“12.2 No Owner shall be entitled to sever his Unit from his related undivided interest to the Common Area for any purpose, and no component interest may be severally sold, conveyed, encumbered or hypothecated. Any violation or attempted violation of this provision shall be void and of no effect….”
The plain meaning of CC&R article 12.2 is that the exclusive use area (the unit) and the undivided interest in the common area are a unitary interest for conveyance purposes, and one may not be conveyed without the other. As noted by the court below, the most obvious way to attempt severability would be for an owner to attempt to convey his interest in the common area to a third party who would not otherwise have rights of access.
A less obvious but equally prohibited severance would occur if an owner attempted to convey the unit, but reserve the right of common area access to [1609] himself, thus denying the purchaser or lessee the use of the common area. What Liebler attempted was a variant on this form of separate conveyance.
The amendment to Liebler’s lease declaring that landlord and tenants shared the premises as cotenants, when there was no family or prior relationship with the lessees and no evidence Liebler ever shared the unit with them, can only have been an attempt to reserve to himself access to the common area while conveying a leasehold estate in the unit. This is contrary to CC&R article 12.2’s prohibition against separate conveyance.
When CC&R article 12.2 is read together with article 8.7, which declares members may delegate their rights of enjoyment to the common area to their tenants “who reside on the property,” it becomes clear the intent of the CC&R provisions is to have one set of users per unit: either the owner or the tenant, but not both. There is no mention of delegating common area rights and contemporaneously retaining them. Because under article 12.2 access to the common area cannot be severed from the unit, a conveyance of the unit to a tenant necessarily suspends the owner’s access to the common area for the length of the tenancy.[FN. 4]
Thus, unlike MaJor, where the rule against nonresident owners was held ultra vires to the board’s authority, here PLTC rule 4.2 is simply a clear statement of the effect of CC&R article 12.2, read together with CC&R article 8.7. None of Liebler’s rights have been extinguished or terminated, and at such time as he ceases leasing the unit and himself becomes a resident he will regain full access to the common area recreational facilities.
(3) As explained in Nahrstedt v. Lakeside Village Condominium Association, supra, 8 Cal.4th at page 372, “Use restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrangement. [Citation].” The Nahrstedt court said further: “The restrictions on the use of property in any common interest development may limit activities conducted in the common areas as well as in the confines of the home itself. [Citations.]
“…. …. …. …. …. …. ….
[1610] “… Ordinarily … ownership also 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. [Citations.] 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.
[Citation.]” (8 Cal.4th at pp. 373-374.)
(2b) Nahrstedt makes clear that restrictions contained in the recorded CC&Rs will be accorded a presumption of validity. (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 383.) In this case, the challenged rule is clearly within the contemplation of the relevant presumptively valid provisions of sections 8 and 12 of the CC&Rs, as well as sections 3.2.9 and 7.8.2. Because we hold the challenged rule is a proper implementation of the relevant sections of the CC&Rs, Liebler’s argument that the rule is not permitted by the CC&Rs must fail.
II. Reasonableness
(4a) The next argument raised by Liebler is that the rule which he challenges is not reasonable, and for this reason may not be enforced against him. (5) The ability to enforce use restrictions is not, of course, absolute. California Civil Code section 1354, subdivision (a) provides: “The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable….” The Nahrstedtcourt defined unreasonable as those restrictions which “are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.” (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 382.)
In addition, enforcement of the restriction must be in good faith, not arbitrary or capricious, and by procedures which are fair and uniformly applied. (Nahrstedt v.Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 383.) The framework of reference, as the court made clear, is not the reasonableness specific to the objecting homeowner, but reasonableness as to the common interest development as a whole. (Id. at p. 386.) Thus, restrictions recorded in the declaration (here, the CC&Rs) are presumptively reasonable, and so long as uniformly applied, will be enforced by the courts unless they fall into one of the three categories of “unreasonable” restrictions. (Ibid.)
(4b) In this case Liebler’s claim that exclusion of nonresident owners 5850from the common recreational facilities is unreasonable must fail, since the [1611] evidence received below demonstrates (a) the restriction was reasonable in itself from the perspective of the development as a whole, rather than that of Liebler, and (b) this reasonable restriction was also neither arbitrarily nor unfairly applied, but was instead applied evenhandedly.
A. The Restriction Itself Is Reasonable.
Viewed from the perspective of this particular common interest development as a whole, there is no indication that the restriction is arbitrary.[FN. 5] To the contrary, as noted by the court below, there are valid reasons why members of a tennis-oriented residential condominium might choose to restrict access to their private tennis courts, since maintaining a low density ensures the courts will be available to residents, families and guests.
The number of tennis courts constructed in any particular development is likely determined during the design phase based on the proposed number of occupants, extrapolated from the number of units in the condominium. The added burden from use by nonresident owners in addition to tenants and owner-residents could potentially greatly increase the number of individuals competing for court space, and this decrease in availability lessens the attractiveness of a tennis-oriented facility.
We are unable to discern any issue of fundamental public policy in the action of a private association which determines to limit access to the available tennis courts to only those members actually in residence, when no restrictions whatsoever are placed on who may choose to reside in the condominium. Any owner may choose to reside on the premises, and thus have complete access to the common area recreational facility.[FN. 6]
Finally, viewed from the context of the common interest development as a whole, the burden on the individual owner is most certainly not disproportionate to the benefit to the whole. Presumably, a large factor in the decision of a prospective owner or tenant to move into a tennis-oriented facility is ready access to private courts. Maintaining a low density by excluding the public, and here, in long-standing restrictions, nonresident owners as well, [1612] confers a benefit on the residents for which many will pay a higher price. Thus Liebler himself has benefited from the restriction, since he is presumably thereby able to negotiate from his tenants a higher rent than he otherwise would have been able to obtain for the premises.
B. The Restriction Has Been Fairly Applied.
Liebler argued the restriction was unfairly and arbitrarily applied, and he had been singled out for exclusion in some sort of personal vendetta. Yet despite a full and fair hearing below, no evidence supported his allegations. The facts and documents stipulated to before trial, and later supported by uncontroverted testimony, indicate that after nonspecific complaints from residents to the Board about nonresidents using the facilities in contravention of the rules, the initial steps toward enforcement were directed at all nonresident owners who were using or potentially using the recreational facilities.
First, a list was compiled of owners with identification cards for use of the recreational facilities whose addresses were not in the confines of PLTC. Then, a form letter was sent to each asking for the return of the cards. With the single exception of Liebler, all nonresident owners complied with the request.
Liebler chose to respond with a letter that can at best be described as hostile. He continued to use the facilities whenever he wished, even after he was no longer in possession of his identification card, and went on using them at least until the date of trial. Faced with such flagrant disregard for its authority, the Board ultimately chose to fine Liebler for his repeated violations.[FN. 7]
Before fining Liebler, PLTC provided him notice and an opportunity for a hearing. He addressed the grievance committee in person. Although the Board continued to fine Liebler as he continued to violate the restriction, no attempt was made to collect the fines, and Liebler has suffered no out-of-pocket damages. Despite Liebler’s allegations of unfairness no evidence was introduced, even in his own testimony, that would show an attempt at selective enforcement.
Since the restriction has been both reasonably and evenly enforced against all to whom it applies, and the enforcement procedures have been fair, including advance written notice, compliance with a previously published and distributed schedule of fines, according Liebler the opportunity to be heard by the grievance committee before proceeding with fines, and since no [1613] evidence was introduced of selective enforcement, Liebler’s assertion of unreasonable enforcement must fail.
III. Authority to Impose Fines
(6a) Liebler last contends that, absent an express provision in the PLTC CC&Rs authorizing such, the Board lacks the authority to subject him to fines. CC&R article 3.2.9 states the corporation may “[e]stablish and publish such rules and regulations as the Board may deem reasonable in connection with the use, occupancy and maintenance of all of the Property….” PLTC rule 5.2 provides in part that “[e]nforcement shall be carried out in a fair and timely manner by means of fines … and other legal action as appropriate.” Section VI of the PLTC rules is a schedule of fines, providing that for “Misuse of the common area” the fine will be $50. Liebler received copies of the PLTC rules when he purchased his condominium unit. For the reasons which follow, we reject Liebler’s assertion these provisions cannot support the imposition of fines upon him.
(7) As noted in part I, ante, our Supreme Court in Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at page 373, stated that one of the characteristics of condominium ownership is “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.”
While cautioning against abuses of such regulatory power (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at pp. 373-374), the Nahrstedt court (as we have cited in part I, ante) went on to observe: “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. [Citation.]” (8 Cal.4th at p. 374, italics added.)
(6b) Civil Code section 1363, subdivision (i) provides in pertinent part that “[i]f an association adopts or has adopted a policy imposing any monetary penalty, including any fee, on any association member for a violation of the governing documents or rules of the association … the board of directors shall adopt and distribute to each member … a schedule of the monetary penalties that may be assessed for those violations, which shall be in accordance with authorization for member discipline contained in the governing documents.”
[1614] Because the PLTC governing documents establishing the right to fine offending association members comply with the cited code section, and because the authorization for the challenged rules is itself contained in the recorded PLTC CC&Rs, Liebler is incorrect in asserting such fines are unauthorized. The trial court correctly found PLTC had the power to impose fines upon Liebler for his violations of PLTC rules, although that court did not address the question of the means by which such fines might be collected.[FN. 8]
CONCLUSION
The judgment is affirmed. Respondents to recover costs on appeal.
Work, Acting P.J., and Haller, J., concurred.
A petition for a rehearing was denied January 8, 1996, and appellant’s petition for review by the Supreme Court was denied February 29, 1996.
[FN. 1] The facts are not in dispute, having largely been stipulated to before trial. The trial was conducted without a jury, and neither party raises any issue of fact on appeal.
[FN. 2] For a description of “common interest” developments tracing the development of modern condominium ownership, see Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 370-375 [33 Cal. Rptr.2d 63, 878 P.2d 1275].
[FN. 3] Although this rule was adopted in 1992, both parties agree a rule excluding nonresident owners from use of the recreational facilities has existed since at least 1977, predating Liebler’s ownership in PLTC by at least seven years.
[FN. 4] We also observe that Civil Code section 1362 provides in any event that “[u]nless the declarationotherwise provides, in a condominium project, or in a planned development in which the common areas are owned by the owners of the separate interests, the common areas are owned as tenants in common, in equal shares, one for each unit or lot.” (Italics added.) Necessarily, if the common areas are owned in shares of “one for each unit,” it is not logically possible (even absent the covenant to the contrary herein) to convey a lease in the unit together with the interest in the common areas, while also retaining the latter separately.
[FN. 5] Liebler argued below that the reasonableness of the rule was to be tested from his own perspective, citing Bernardo Villas Management Corp. v. Black (1987) 190 Cal. App.3d 153 [235 Cal. Rptr. 509] and Portola Hills Community Assn. v. James (1992) 4 Cal. App.4th 289 [5 Cal. Rptr.2d 580]. These cases have been disapproved in Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at pages 385-386, requiring instead the focus be on “the restriction’s effect on the project as a whole, not on the individual homeowner.” (Id. at p. 386.)
[FN. 6] Liebler’s amended lease agreement declaring that he and his tenants “share the premises as cotenants” is ineffectual in light of the admitted fact Liebler does not reside on the premises.
[FN. 7] We do not here decide the separate question of whether such fines are legally enforceable. See part III, post.
[FN. 8] We also need not here reach the question of the means by which such fines may be collected, as there is at present no actual case or controversy concerning this matter. Both sides agree no attempt has been made to collect the fines, and absent such collection efforts, a determination in the abstract of the manner in which PLTC might collect such fines would constitute an advisory opinion. “`The rendering of advisory opinions falls within neither the functions nor the jurisdiction of this court.’ (People ex rel. Lynch v. Superior Court (1970) 1 Cal.3d 910, 912 [83 Cal. Rptr. 670, 464 P.2d 126].)” (Salazar v. Eastin (1995) 9 Cal.4th 836, 860 [39 Cal. Rptr.2d 21, 890 P.2d 43].) That holding applies here.
Ironwood Owners Association IX v. Solomon
[Architectural Control; Enforcement] A HOA must show that it has followed its own standards and procedures when taking action to enforce violations of its governing documents.
Erwin & Anderholt and Michael J. Andelson for Defendants and Appellants.
Guralnick, McClanahan & Zundel, Wayne S. Guralnick and Judith L. Pilson for Plaintiff and Respondent.
OPINION
KAUFMAN, J.
Defendants Bernard and Perlee Solomon (Solomons) appeal from a summary judgment in favor of plaintiff Ironwood Owners Association IX (Association). The judgment granted the Association a mandatory injunction compelling the removal of eight date palm trees from the Solomons’ property. The Association was also granted declaratory relief, the court finding the Solomons in violation of the Association’s declaration [769] of covenants, conditions and restrictions (CCRs) for having planted the date palm trees without previously filing a plan with and obtaining the written approval of the Association’s architectural control committee.
Facts[FN 1]
The Solomons purchased a residential lot in the Ironwood Country Club, a planned unit development, in March 1979. They do not dispute that they bought the property with full notice of the CCRs, which were duly recorded in Riverside County in December 1978.
The date palm trees in question were planted sometime during July 1983 and have remained there since. The Solomons have admitted and it is therefore undisputed that they did not file a plan regarding the palm trees with the Association’s architectural control committee and accordingly never received a permit or approval for the landscaping addition.
The Association is, pursuant to section 1.02 of the CCRs, “a non-profit California corporation, the members of which [are] all of the several Owners of the Real Property.” The Association’s members elect a board of directors to conduct the Association’s business affairs. Under section 2.04[FN 2] the board has the power to “enforce all of the applicable provisions” of the Association’s bylaws, its articles of incorporation, and the CCRs (subd. (a)), to “delegate any of the powers or duties imposed upon it herein to such committees, officers or employees as the Board shall deem appropriate” (subd. (e)), and to “take such other action and incur such other obligations … as shall be reasonably necessary to perform the Association’s obligations hereunder or to comply with the provisions or objections [sic] of [the CCRs]” (subd. (i)).
The architectural control committee is a body of three persons first appointed by Silver Spur Associates, the original owner and conveyor of the property; committee vacancies are now filled by the board of directors. The following provisions from the CCRs describe the powers and duties of and procedures to be followed by the architectural control committee:
“4.02. Duties of architectural control committee. All plans and specifications for any structure or improvement whatsoever to be erected on or moved upon or to any Residential Lot, and the proposed location thereof on any such Residential Lot, and construction material, the roofs and exterior [770] color schemes, any later changes or additions after initial approval thereof, and any remodeling, reconstruction, alterations or additions thereto on any such Residential Lot shall be subject to and shall require the approval in writing, before any such work is commenced, of the Architectural Control Committee.
“4.03. Submission of Plans. There shall be submitted to the Architectural Control Committee two complete sets of plans and specifications for any and all proposed Improvements to be constructed on any Residential Lot, and no structures or improvements of any kind shall be erected, altered, placed or maintained upon any Residential Lot unless and until the final plans, elevations and specifications therefor have received such written approval as herein provided. Such plans shall include plot plans showing the location on the Residential Lot of the building, wall, fence or other structure proposed to be constructed, altered, placed or maintained thereon, together with the proposed construction material, color schemes for roofs, and exteriors thereof, and proposed landscape planting.
“4.04. Approval of Plans. The Architectural Control Committee shall approve or disapprove plans, specifications and details within thirty days from the receipt thereof or shall notify the Owner submitting them that an additional period of time, not to exceed thirty days, is required for such approval or disapproval. Plans, specifications and details not approved or disapproved, or for which time is not extended within the time limits provided herein, shall be deemed approved as submitted. One set of said plans and specifications and details with the approval or disapproval of the Architectural Control Committee endorsed thereon shall be returned to the Owner submitting them and the other copy thereof shall be retained by the Architectural Control Committee for its permanent files. Applicants for Architectural Control Committee action may, but need not, be given the opportunity to be heard in support of their application.
“4.05. Standards for Disapproval. The Architectural Control Committee shall have the right to disapprove any plans, specifications or details submitted to it if: (i) said plans do not comply with all of the provisions of [the CCRs]; (ii) the design or color scheme of the proposed building or other structure is not in harmony with the general surroundings of the Real Property or with the adjacent buildings or structures; (iii) the plans and specifications submitted are incomplete; or (iv) the Architectural Control Committee deems the plans, specifications or details, or any part thereof, to be contrary to the best interest, welfare or rights of all or any of the other Owners.”
[771] Discussion
1. CCRs Require Submission of Landscaping Plan
(1a) We have concluded the court ruled correctly that the CCRs require the submission of a plan to the architectural control committee for substantial landscaping changes such as the planting of eight tall date palm trees. Section 4.02 gives the committee power and duty to review “additions” to residential lots and we interpret this term broadly to include any substantial change in the structure and appearance of buildings and landscapes. We note that in drafting the CCRs, the original conveyor of the subdivision property included section 8.02(b) which provides for liberal construction of its provisions.[FN 3] (See also Civ. Code, § 1370 [formerly Civ. Code, § 1359].) Furthermore, “proposed landscape planting” is specifically enumerated in section 4.03 as an item to be described in plans for such additions filed with the committee, which clearly shows the committee was to take landscaping into account when it weighed the esthetic aspects of plans it received.
(2) (See fn. 4.), (3) Because no extrinsic evidence bearing on the interpretation of these provisions of the CCRs was shown to exist,[FN 4] this question was solely one of law (Estate of Dodge (1971) 6 Cal.3d 311, 318 [98 Cal. Rptr. 801, 491 P.2d 385]) and was therefore properly determined by the court on summary judgment. (See Milton v.Hudson Sales Corp. (1957) 152 Cal. App.2d 418, 433 [313 P.2d 936].) (1b) The court’s declaratory conclusion that the Solomons were and are required under the CCRs to submit a plan to the architectural control committee proposing the addition of the eight date palm trees will be affirmed.
2. Association’s Request for Injunction Does Pose Questions of Material Fact
The Association’s request for a mandatory injunction compelling the removal of the Solomons’ palm trees was in effect a request to enforce an administrative decision on its part disapproving the palm trees as not meeting the standards set forth in section 4.05 of the CCRs. That this is so is [772] demonstrated by the final letter sent by the Association’s counsel to the Solomons demanding removal of the palm trees: “Despite the provisions [of the CCRs] referenced above, you unilaterally installed the date palm trees on your property, substantially changing the uniform development, harmony and balance of the improvements within the Association. The fact that you did not obtain approval from the Architectural Control Committee is not even at issue.” (Italics added.)
(4a) Despite the Association’s being correct in its contention the Solomons violated the CCRs by failing to submit a plan, more was required to establish its right to enforce the CCRs by mandatory injunction.[FN 5] (5) When a homeowners’ association seeks to enforce the provisions of its CCRs to compel an act by one of its member owners, it is incumbent upon it to 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. (1983) 142 Cal. App.3d 642, 650-651 [191 Cal. Rptr. 209], and cases there cited; Laguna Royale Owners Assn. v. Darger (1981) 119 Cal. App.3d 670, 683-684 [174 Cal. Rptr. 136]; cf. Pinsker v. Pacific Coast Society of Orthodontists (1974) 12 Cal.3d 541, 550 [116 Cal. Rptr. 245, 526 P.2d 253]; Lewin v. St. Joseph Hospital of Orange (1978) 82 Cal. App.3d 368, 388 [146 Cal. Rptr. 892]; also cf. Code Civ. Proc., § 1094.5.)
“The criteria for testing the reasonableness of an exercise of such a power by an owners’ association are (1) 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 (2) whether the power was exercised in a fair and nondiscriminatory manner.” (Laguna Royale Owners Assn. v. Darger, supra, 119 Cal. App.3d 670, 683-684.)
(4b) Several questions of material fact therefore remained before the trial court when it granted summary judgment in this case. First is the question whether the Association followed its own procedures as set forth in the CCRs. According to the CCRs the Association is governed by a board of directors, but there is nothing in the record showing any decision in respect to this matter by the Association’s board of directors. Secondly, the record does not document and the parties do not indicate that the architectural [773] control committee ever met to consider whether or not the Solomons’ palm trees violated the standards set forth in section 4.05 of the CCRs. The record contains no indication that either the board or the architectural control committee made any findings, formal or informal, as to whether the palm trees met the standard in section 4.05 upon which the disapproval of the palm trees was apparently based.
There is some indication in the record that the Association attempted to assess the esthetic impact of the palm trees on the community. The matter was discussed at several meetings, members of the board communicated in writing and over the phone with Bernard Solomon, and at least two “polls” were conducted to elicit community opinion. As a matter of law, however, these acts on the part of the Association without appropriate decisions by the governing board or the proper committee did not constitute a reasonable application of the CCRs to the palm trees dispute. The CCRs carefully and thoroughly provide for the establishment of an Architectural Control Committee and impose upon it specifically defined duties, procedures and standards in the consideration of such matters. The record as it stands discloses a manifest disregard for these provisions: whatever decision was made does not appear to be that of the governing body or the committee designated to make the decision; no findings of any sort bridge the analytic gap between facts and the conclusions of the decisionmaker, whoever that was; and the record provides no means for ascertaining what standard was employed in the decisionmaking process.[FN 6]
(6) To be successful on a motion for summary judgment, the moving party must show it is entitled to judgment as a matter of law. (Baldwin v. State of California (1972) 6 Cal.3d 424, 439 [99 Cal. Rptr. 145, 491 P.2d 1121]; Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417 [42 Cal. Rptr. 449, 398 P.2d 785].) (4c) Having failed to establish that its actions were regular, fair and reasonable as a matter of law, the Association was not entitled to a mandatory injunction on summary judgment and the trial court erred in granting that relief.
Disposition
That portion of the trial court’s judgment granting the Association declaratory relief and affirming its interpretation of the declaration of covenants, [774] conditions and restrictions (¶¶ 1 and 2) is affirmed. Otherwise the judgment is reversed. Each party shall bear its own costs on appeal.
Rickles, Acting P.J., and McDaniel, J., concurred.
[FN. 1] The facts as contained in the record are largely undisputed and are drawn from the complaint, the parties’ statements in motions, briefs and on deposition, and supporting declarations.
[FN. 2] All further citations will be to the CCRs unless otherwise noted.
[FN. 3] Section 8.02(b) provides: “The provisions of [the CCRs] shall be liberally construed to accomplish [their] purpose of creating a uniform plan for the operation of the project for the mutual benefit of all Owners.”
[FN. 4] At oral argument counsel for the Solomons indicated that in Mr. Solomon’s deposition he stated it was not his understanding that landscaping restrictions of this sort applied to the Solomons’ property or that the Solomons were required to submit plans for approval of the date palms. But evidence of Mr. Solomon’s subjective belief would have been irrelevant; the test is an objective one. (See 1 Witkin, Summary of Cal. Law (1973) Contracts, § 522, p. 445, and authorities there cited.)
[FN. 5] Even had the basis for the injunction been solely the failure to submit plans for approval, the record would still be deficient. There is nothing showing final board action on that basis either. Moreover, had that been the sole basis, the injunction should properly have been in the alternative, e.g., either to remove the trees or submit a plan. Here the order was unconditional and absolute.
[FN. 6] From comments made at oral argument it may appear that these things were in fact done and are simply not reflected in the record. That of course may be properly shown in subsequent proceedings.
Ryland Mews Homeowners Association v. Munoz
[Architectural Control; Nuisances; Hardsurface Flooring] A HOA has the authority to place restrictions on the type of flooring that may be installed in a homeowner’s unit in order to prevent the creation of nuisances.
Plastiras & Terrizzi, Michael Patrick Terrizzi; and Mariam Smairat for Plaintiffs and Respondents.
Ruben Munoz, in pro. per.; and John M. Wadsworth for Defendant and Appellant.
OPINION
ELIA, Acting P. J. —
In this dispute between defendant Ruben Munoz and plaintiff Ryland Mews Homeowners Association (HOA or Association), plaintiff obtained a preliminary injunction requiring Munoz to remedy the unauthorized modification of the flooring in his upstairs condominium unit to reduce the transmission of noise to the unit below. Defendant contends that the superior court improperly balanced the prospective harm to each party and erroneously concluded that plaintiff would prevail at trial. We find no abuse of discretion and will therefore affirm the order.
Background
When defendant and his wife moved into unit No. 322 of the subject property in February 2011, he replaced the carpets with hardwood floors to accommodate his wife’s severe dust allergy. After the installation, Resty Cruz and David Yborra, occupants of the unit below, began to experience “sound transfer” through the floor. Before defendant’s occupancy Cruz and Yborra had never had any problems with sound transmission from above. But after February 2011 the noise from upstairs at all hours of the day and night became “greatly amplified” and “intolerable,” so that Cruz and Yborra found it difficult to relax, read a book, watch television, or sleep.
On November 28, 2011, Susan Hoffman, an employee of the firm that provided property management services for the Association, wrote to defendant, notifying him that his alteration of the flooring appeared to have been made without prior approval of the HOA. Hoffman requested a copy of the written approval in the event that the property management files were incomplete. Defendant did not respond within the 30 days Hoffman had given him, so on January 31, 2012, with authorization from the HOA board of directors, Hoffman wrote to defendant again, this time requesting alternative dispute resolution (ADR) under the Davis-Stirling Common Interest Development Act, Civil Code former section 1369.530 (now Civ. Code, § 5935).[FN. 1] [708] Included in the letter was the text of former section 1369.530, which expressly allowed defendant 30 days in which to accept or reject ADR; after that period, the request was to be deemed rejected. (Former § 1369.530, subd. (c).) Defendant still did not respond.
Plaintiff brought this action on July 12, 2012, seeking an injunction and declaratory relief. Plaintiff alleged that defendant had violated the restrictions applicable to all residents at the time of the floor installation. On September 28, 2012, plaintiff applied for a preliminary injunction, “restraining and enjoining” defendant from “[m]aintaining hardwood flooring” and from violating other HOA restrictions. Attaching declarations from Hoffman, Cruz, and Yborra, plaintiff alleged that without the requested injunction, adjacent homeowners would continue to suffer “great and immediate irreparable harm in that Defendant’s hardwood floors create an acoustic nuisance, both violating the neighboring owner’s sense of quiet enjoyment, but also [sic] reducing property values for all owners within the Association.” Plaintiff further asserted that it was “inevitable” that it would ultimately prevail in the action and that compliance with the HOA rules would be of only “moderate” cost to defendant.
Defendant opposed the motion, contending that hardwood floors were necessary in his home because his wife was severely allergic to dust; consequently, removing the floors and installing new floors not only would be expensive but would endanger his wife’s health. He found the likelihood of plaintiff’s success on the merits to be “questionable” and maintained that no irreparable harm had been shown. Both defendant and his wife, Elena Delgado, submitted declarations describing Delgado’s medical condition. Defendant also stated that he had received no complaints about noise between the time of installation in February 2011 and the notice of November 28, 2011.
On December 12, 2012, defendant moved to strike the complaint, enter judgment on the pleadings, and refer the matter to ADR. Defendant contended that plaintiff had failed to file a certificate stating that the ADR requirements set forth in former section 1369.530 had been met or waived. The court granted defendant’s motion to strike as authorized by former section 1369.560, subdivision (b). It granted plaintiff leave to amend, however, and it denied defendant’s motion for judgment on the pleadings as well as his request for referral to ADR. Plaintiff then amended its complaint and submitted a certificate of compliance in accordance with former section 1369.560, subdivision (a)(2), (3).
The hearing on the injunction request took place on December 13, 2012. The court confirmed with plaintiff that it was not demanding that defendant [709] “tear up the floors,” but sought only a “proposal through a contractor” for a modification consistent with the HOA rules. Plaintiff added a request for an interim solution, that throw rugs be placed on 80 percent of the floors outside the kitchen and bath areas. The court found those suggestions reasonable and granted the request. Its written order, however, was not filed until April 2013.
In March 2013 defendant demurred to the first amended complaint and again moved to strike, alleging an insufficient certificate showing compliance with the statutory ADR provisions, plaintiff’s failure “to state facts demonstrating a cause of action,” and its failure “to demonstrate the necessity for injunctive relief.” This time, however, the court overruled the demurrer and denied the motion to strike, observing that factual disputes existed which should not be resolved at the pleading stage of the litigation.
On the same day, April 17, 2013, the court filed its order granting the preliminary injunction. As the language of the order informs defendant’s analysis of it as an unjustified mandatory injunction, we quote the relevant portions: “1. Any further installation of flooring or floor covering in your separate interest located at 435 N. 2nd St. #322 San Jose, CA shall be in compliance with the Association governing documents. [¶] 2. You shall reduce undue transmission of acoustic trespass or nuisance from the subject unit in violation of the governing documents. Such transmissions shall be reduced as follows: … 80% of the total flooring area, other than kitchen or bathrooms[,] must be covered with throw rugs or comparable sound[-] dampening material, in particular those areas with heavy travel such as hallways; [¶] 3. You shall present to the Ryland Mews Homeowners Association, through its Board of Directors or design review committee, a proposal for modification to the existing floor covering, such proposal to be within the specific approved guidelines and specifications for floor covering modifications established by the Association.” The modification proposal had to be submitted within 30 days. If plaintiff rejected the proposal in good faith, based on the Association’s architectural standards, defendant then had an additional 15 days to supplement or revise his proposal. If defendant’s plans were approved, defendant had 15 days thereafter to initiate construction of the modifications and 60 days to complete the construction. He then was required to notify the Association and “cooperate with a compliance inspection.” From that order granting the injunction defendant brought this timely appeal.
Discussion
Defendant raises two issues on appeal. He first contends that the court abused its discretion in granting the injunction, which he classifies as mandatory. He then asserts that the court “lacked jurisdiction” to issue the [710] injunction because the ADR request did not comply with former section 1369.530 (now § 5935). Because this second issue will be dispositive if defendant is correct, we address it first.
1. Compliance with former section 1369.530
(1) Under former section 1369.520, subdivision (a), plaintiff, as an association managing a common interest development, was prohibited from filing an action for declaratory, injunctive, or writ relief against defendant unless the parties had “endeavored to submit their dispute to alternative dispute resolution pursuant to this article.” Plaintiff could initiate this process by complying with former section 1369.530. That section required plaintiff to serve on defendant a “Request for Resolution” containing the following: “(1) A brief description of the dispute between the parties. [¶] (2) A request for alternative dispute resolution. [¶] (3) A notice that the party receiving the Request for Resolution is required to respond within 30 days of receipt or the request will be deemed rejected. [¶] (4) If the party on whom the request is served is the owner of a separate interest, a copy of this article.” (Former § 1369.530, subd. (a).)
Defendant’s grievance is directed at the last condition. He complains that he did not receive a copy of the entire article, which comprised the ADR provisions applicable to common interest developments. (See former §§ 1369.510-1369.570.) Defendant insists that in its ADR request to him plaintiff did not substantially comply with former section 1369.530, subdivision (a)(4), when it included a copy of only that statute. He then contends, “Because Mr. Munoz challenged the defect by way of a demurrer and a motion to strike, the trial court should have granted his relief.”
We are not, however, reviewing the court’s order overruling defendant’s demurrer and denying his motion to strike the first amended complaint.[FN. 2] It was in that demurrer and motion to strike, not his opposition to the injunction, that defendant raised the issue of noncompliance with former section 1369.530. Furthermore, defendant cites no authority for his assertion that plaintiff’s failure to provide the entire article 2 of chapter 7 of title 6 of part 4 of division 2 in requesting ADR deprived the court of jurisdiction to issue the preliminary injunction.
Nor does he identify any prejudice attributable to plaintiff’s technical deficiency in complying with the statute. While pointing out that the “obvious purpose” of former section 1369.530, subdivision (a)(4), is to “apprise the [711] owner of important procedural rights and duties involved in the ADR process,” defendant, an attorney, has never asserted that he did not understand his rights. The letter he received requesting ADR informed him that he had 30 days to accept or reject the request, and that if he did not respond, he would be deemed to have rejected it. He implicitly rejected the request. Although the request letter contained the entire text of former section 1369.530 — including subdivision (a)(4), the provision requiring plaintiff to provide a copy of article 2 of chapter 7 of title 6 of part 4 of division 2 — defendant never complained that he had not received the entirety of that article until his motion to strike the complaint. And even then his supporting declaration did not relate any confusion about or misunderstanding of his rights. Also absent in defendant’s argument is any indication that he would have accepted plaintiff’s request if he had received the entire article governing the procedures involved in ADR between him and the Association. In these circumstances we cannot find prejudice in the omission of the remaining statutory provisions in article 2.[FN. 3]
2. Merits of the preliminary injunction request
(2) In deciding whether to issue a preliminary injunction, a court must weigh two “interrelated” factors: (1) the likelihood that the moving party will ultimately prevail on the merits and (2) the relative interim harm to the parties from issuance or nonissuance of the injunction. (Hunt v. Superior Court (1999) 21 Cal.4th 984, 999 [90 Cal.Rptr.2d 236, 987 P.2d 705]; Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432 [261 Cal.Rptr. 574, 777 P.2d 610].) “[T]he decision to grant a preliminary injunction rests in the sound discretion of the trial court.” (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69 [196 Cal.Rptr. 715, 672 P.2d 121].) Accordingly, on appeal we review that decision for abuse of discretion. “A trial court will be found to have abused its discretion only when it has `”exceeded the bounds of reason or contravened the uncontradicted evidence.”‘ [Citations.] Further, the burden rests with the party challenging the injunction to make a clear showing of an abuse of discretion.” (Ibid.; Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1047 [151 Cal.Rptr.3d 65].)
[712] In reviewing the lower court’s ruling for abuse of discretion, we do not reweigh the evidence or evaluate the credibility of witnesses. “`[T]he trial court is the judge of the credibility of the affidavits filed in support of the application for preliminary injunction and it is that court’s province to resolve conflicts.’ [Citation.] Our task is to ensure that the trial court’s factual determinations, whether express or implied, are supported by substantial evidence. [Citation.] Thus, we interpret the facts in the light most favorable to the prevailing party and indulge in all reasonable inferences in support of the trial court’s order.” (Shoemaker v. County of Los Angeles (1995) 37 Cal.App.4th 618, 625 [43 Cal.Rptr.2d 774].)
Defendant contends that a higher level of scrutiny is called for here because the superior court’s order was “clearly a mandatory injunction,” not a prohibitory one.[FN. 4] In his view the injunction “cannot bear that scrutiny because the facts presented in support of the injunction did not demonstrate that this was an extreme case in which the right to mandatory injunctive relief was clear, or that irreparable harm would ensue without the order actually granted.”
Defendant’s argument in effect asks this court to reweigh the evidence. He repeats his assertion that he did not violate the HOA restrictions; two of the alleged rules “didn’t exist when he installed the hardwood floors. He couldn’t have breached them.” He further suggests that his own opposition “cast[s] severe doubt on the credibility of the sound problems described by Mr. Yborra and Mr. Cruz.” Defendant further contests the remedy imposed in the injunction. Noting the interim measure of using throw rugs on the floors, he insists that there were “other, less draconian” remedies than “requiring Mr. Munoz to tear out his entire floor.”
Defendant’s analysis is flawed. Not only does he request an improper reweighing of the witnesses’ credibility, his contentions are premised on an inaccurate representation of the evidence presented below. Contrary to defendant’s assumption, for example, plaintiff was not relying on the 2012 HOA rules; in asking for the injunction it clearly relied on the 1993 [713] “Declaration of Restrictions,” which was in effect when defendant replaced the carpeting with hardwood floors. Section 3.3 of that document provided, “No activity shall be conducted in any Unit or Common Area that constitutes a nuisance or unreasonably interferes with the use or quiet enjoyment of the occupants of any other Condominium.” Section 3.17 more specifically stated, “No Unit shall be altered in any manner that would increase sound transmission to any adjoining or other Unit, including, but not limited to, the replacement or modification of any flooring or floor covering that increases sound transmissions to any lower Unit.” And under section 7.2(v), prior written approval had to be obtained from the architectural review committee before “[a]ny replacement or modification to any floor coverings or wall or ceiling materials or any penetration or other disturbance of any wall, floor, or ceiling, if the replacement[,] modification, penetration or disturbance could result in any increase in the sound transmissions from the Unit to any other Unit.” Defendant’s protest that he was wrongly accused of violating nonexistent restrictions is without merit.
Defendant further misrepresents the court’s order. The court did not direct him to tear out the hardwood floors; at the hearing it emphasized more than once that it did not want anyone inferring that “he’s got to go back out and tear up the floors. That’s not what I’m ordering.” What the court did order was a proposal from defendant to the board of directors or to a design review committee for modifying the floors to bring them into compliance with the guidelines established by the Association.
(3) We see no abuse of discretion in such an order, even if the injunction was of a mandatory rather than prohibitory nature subject to heightened appellate scrutiny. Indeed, the directive to find a compromise in modifying the flooring, as well as the interim remedy of using throw rugs, reflected a balanced consideration of the circumstances of everyone involved, including the residents below who were adversely affected by defendant’s violation of the noise and nuisance restrictions. The finding that defendant’s violation of the HOA rules had resulted in a continuing “great nuisance” for the occupants below was supported by substantial evidence in the declarations of Cruz and Yborra, whose credibility was for the superior court, not this court, to determine. The evidence clearly supported the court’s weighing of the relative interim harm to the parties and its implied determination that plaintiff would ultimately prevail on the merits. We must conclude, therefore, that defendant has failed to meet his burden to show that the court exceeded the bounds of reason or contravened uncontradicted evidence. Reversal is not required.
[714] Disposition
The order is affirmed.
Bamattre-Manoukian, J., and Mihara, J., concurred.
[FN. 1] All further statutory references are to the Civil Code.
[FN. 2] The challenge to this order was made by a petition for writ of mandate, which this court summarily denied. On appeal defendant duplicates the argument raised in the petition, even to the extent that he refers to himself as the real party in interest.
[FN. 3] In addition to former section 1369.530, article 2 of chapter 7 of title 6 of part 4 of division 2 consisted of (1) an explanation of the terms “`[a]lternative dispute resolution'” and “`[e]nforcement action'” (former § 1369.510); (2) the requirement that ADR be attempted before an association may file an action for injunctive, declaratory, or writ relief (former § 1369.520); (3) the requirement that ADR be completed within 90 days (former § 1369.540); (4) the tolling of the statute of limitations after the ADR request is served (former § 1369.550); (5) the requirement of a certificate of compliance (former § 1369.560); (6) referral of the action to ADR by stipulation of the parties (former § 1369.570); (7) a provision governing the court’s consideration of fees and costs (former § 1369.580); and (8) a requirement that an association provide the members with an annual summary of article 2 (former § 1369.590).
[FN. 4] “`[T]he general rule is that an injunction is prohibitory if it requires a person to refrain from a particular act and mandatory if it compels performance of an affirmative act that changes the position of the parties.'” (Oiye v. Fox, supra, 211 Cal.App.4th at p. 1048, quoting Davenport v. Blue Cross of California (1997) 52 Cal.App.4th 435, 446 [60 Cal.Rptr.2d 641].) Although a preliminary mandatory injunction is subject to stricter review on appeal, (Teachers Ins. & Annuity Assn. v. Furlotti (1999) 70 Cal.App.4th 1487, 1493 [83 Cal.Rptr.2d 455]), “[t]he principles upon which mandatory and prohibitory injunctions are granted do not materially differ. The courts are perhaps more reluctant to interpose the mandatory writ, but in a proper case it is never denied” (Allen v. Stowell (1905) 145 Cal. 666, 669 [79 P. 371]).
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Ruoff v. Harbor Creek Community Association
[Insurance; Liability] A HOA’s members were held personally liable in excess of the HOA’s insurance policy limit for injuries stemming from the HOA’s common areas that were owned by the HOA’s members as tenants in common.
Dicaro, Highman, D’Antony, Dillard, Fuller & Gregor, Henry P. Schrenker, Sheri Laughlin Bills, Cassidy, Warner, Brown, Combs & Thurber, Lloyd W. Felver, Stockdale, Peckham & Werner, Kelly A. Woolsey, Waters, McCluskey & Boehle and Joseph R. Saunders for Defendants and Respondents.
OPINION
SONENSHINE, J.
Martha Ruoff and Russell Ruoff, individually and as Martha’s conservator, challenge summary judgments entered in favor of various defendants [FN. 1] in a suit arising out of Martha’s slip and fall on a stairway in the common area of the 152-unit Harbor Creek complex. Martha sustained catastrophic injuries. According to appellants, whose statement is uncontradicted by respondents, on August 9, 1988, Martha fell backwards, landing at the bottom of the stairs, her foot wedged in a gap between the side of the building and the edge of the stairs. Comatose and bleeding, she was taken to Mission Hospital and admitted to the intensive care unit (ICU) where she was treated for multiple skull fractures. Due to complications, she underwent partial amputation of her left thumb, index and middle fingers. A month after the accident, a percutaneous endoscopic gastrostomy (insertion of a feeding tube in the stomach) was performed. The following month, a lumbo-peritoneal shunt was inserted in her spine for draining fluids. Martha remained in a coma. A tracheotomy tube inserted at the time of the accident was not removed for two and one-half months. Released from Mission Hospital after 107 days in the ICU, Martha was transferred to the Rehabilitation Institute of Santa Barbara, where she underwent a course of treatment and therapy until, after eight months, the Ruoffs were no longer able to pay for the institutional care. Martha now lives at home, where her 72-year-old husband takes care of her. She is unable to bathe, dress or feed herself. She is incontinent in bladder and bowel. Her diagnosis and prognosis include “probable permanent memory loss, gait disturbance, incontinence and other severe neurological abnormalities.” Her only communication is “babble.” She will require 24-hour-a-day care for the remainder of her life. Her medical expenses to date exceed $750,000.
The summary judgment argument of the defendants, individual owners of Harbor Creek condominium units, is based on the following undisputed facts: (1) They are tenants-in-common of the common areas of the complex,[1627]each owning an undivided 1/152 interest; (2) they have delegated control and management of the common areas to their homeowners association (HOA), which has no ownership interest in the property; (3) the HOA has liability insurance of $1 million; and (4) it is authorized to assess its members for pro-rata contribution if a judgment exceeds policy limits. The owners argue that for these reasons, (a) Civil Code section 1365.7 [FN. 2] should be read to immunize them from civil liability, and (b) departure from the common law rule of property owners’ liability would serve the greater good and work no substantial detriment to injured third persons.
The Ruoffs contend the immunity of section 1365.7 is expressly limited to volunteer HOA officers or directors and cannot be expanded judicially to include others. The owners, as tenants-in-common in the common area, are subject to the same nondelegable duties to control and manage their property as are other property owners. The trial court agreed with the owners. We agree with the Ruoffs and reverse.
I.
On appeal from summary judgment, the trial court’s determination of a question of law is subject to independent review. (Wu v. Interstate Consolidated Industries (1991) 226 Cal.App.3d 1511, 1514 [277 Cal.Rptr. 546].) [1] Initially, we note the Ruoffs’ assertion that the trial court failed to fulfill its duty under Code of Civil Procedure section 437c, subdivision (g), to specify the reasons for its determination. [FN. 3] We agree the statement of reasons-by-reference was noncompliant. But the court’s failure to perform its statutory duty does not automatically result in reversal. We need only determine whether the record establishes the owners’ entitlement to summary judgment in their favor. As stated in Barnette v. Delta Lines, Inc. (1982) 137 Cal.App.3d 674, 682 [187 Cal.Rptr. 219]: “We are not confined,[1628]in considering the granting of the summary judgment, to the sufficiency of the stated reasons. It is the validity of the ruling which is reviewable and not the reasons therefor. [Citation.]” (See also California Aviation, Inc. v. Leeds (1991) 233 Cal.App.3d 724, 730-731 [284 Cal.Rptr. 687].)
II.
[2a] The summary judgments were granted on the basis that, as a matter of law, the individual condominium owners could not be held liable for injuries sustained in the common area of the Harbor Creek complex. The record establishes that the decision involved no determination of whether the owners had exercised due care; it involved only a determination that no duty existed. [FN. 4]
In the usual case, an owner or occupier of real property must exercise ordinary care in managing the property. (§ 1714, subd. (a).) The duty of care is owed to persons who come on the land (see generally, Rowland v. Christian (1968) 69 Cal.2d 108 [70 Cal.Rptr. 97, 443 P.2d 561, 32 A.L.R.3d 496]), and ordinarily it is nondelegable. (Swanberg v. O’Mectin (1984) 157 Cal.App.3d 325, 331- 332 [203 Cal.Rptr. 701].)
In the case of a condominium complex, section 1365.7 immunizes a volunteer officer or director of an association managing a common interest residential development from civil tort liability if (1) the injury-producing negligent act or omission was performed within the scope of association duties, was in good faith, and was not willful, wanton, or grossly negligent, and (2) the association maintained at least $1 million of applicable general liability insurance if the development exceeds 100 separate interests. [FN. 5] (§ 1365.7, subds. (a)(1), (2), (3) and (4)(B).) Subdivision (b) allows the volunteer officer or director to recover actual expenses incurred in executing the duties of the position without losing the statutory immunity. But subdivision (c) excludes from the definition of volunteer any officer or director who, at the time of the negligent act or omission, received compensation as an employee of statutorily designated persons or entities. Under subdivision (d), the association itself does not enjoy immunity for the negligent acts or omissions of its officers or directors. Finally, subdivision (e) expressly limits[1629]the immunity of section 1365.7 to the designated persons: “This section shall only apply to a volunteer officer or director who resides in the common interest development either as a tenant or as an owner of no more than two separate interests in that development.” We find this to be a comprehensive and extraordinarily clear immunity statute.
[3a] Statutory interpretation presents a question of law. (Schuhart v. Pinguelo (1991) 230 Cal.App.3d 1599, 1607 [282 Cal.Rptr. 144].) [2b] The owners contend that in section 1365.7, the Legislature intended to immunize them from liability for tortious acts or omissions in the management and control of the commonly held property. Under established rules of statutory construction, we may not read such an intention into this unambiguous statute. [3b] “It is axiomatic that in the interpretation of a statute where the language is clear, its plain meaning should be followed. [Citation.]” (Lubin v. Wilson (1991) 232 Cal.App.3d 1422, 1427 [284 Cal.Rptr. 70]; see also Forrest v. Trustees of Cal. State University & Colleges (1984) 160 Cal.App.3d 357, 362 [206 Cal.Rptr. 595].) Moreover, we must attach significance to every word of a statute. (See McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn. (1991) 231 Cal.App.3d 1450, 1454 [282 Cal.Rptr. 828].) [2c] If we were to read the statute as the owners urge, we would need to read out the express limitation of immunity of subdivision (e). We are not permitted or inclined to do that. [FN. 6]
We also reject the owners’ convoluted argument that by reverse implication, based on a reading of Davert v. Larson (1985) 163 Cal.App.3d 407 [209 Cal.Rptr. 445], section 1365.7 endows them with a right to delegate their duties of control and management of the common areas and thus escape liability to which they would otherwise be subjected under established law.
In Davert, the Court of Appeal, in a case of first impression, reversed a summary judgment in favor of a defendant property owner who asserted “he owed no duty of care to plaintiffs as a landowner because he took title to his interest in the property subject to a recorded declaration of covenants, conditions and restrictions delegating exclusive control over the subject property to [a property owners’ association].” (Davert v. Larson, supra, 163[1630]Cal.App.3d at p. 409.) The owner claimed his ownership interest of 1/2500 was too small to provide a basis for liability and he personally exercised no control over the management of the property. (Id. at p. 410.) The appellate court noted with approval the conclusion of “a leading commentator” that “individual owners of common areas in California are liable to third parties for torts arising in common areas. [Citation.]” (Id. at p. 411.) In its discussion, the court alluded to the fact that existing California law did “not require insurance to protect third parties in the case of common area torts.” (Id. at p. 412.) Thus, “relieving individual owners in common of liability would eliminate any motivation on the part of any party to exercise due care in the management and control of commonly owned property and could leave third parties with no remedy at law.” (Ibid.) The Davert court concluded: “[T]enants in common of real property who delegate the control and management of the property to a separate legal entity should not be immunized from liability to third parties for tortious conduct.” (Ibid.)
The owners say Davert means that if the duty of control and management is delegated to a separate legal entity and sufficient liability insurance is available for injured parties, then the reason for imposition of liability on the individual owners evaporates. The argument continues: Since section 1365.7 was enacted after publication of Davert, and requires HOA’s to maintain certain minimum levels of liability insurance, the Legislature must have been reacting to Davert and intending to eliminate common law rules regarding property owners’ liability.
The argument is crafty, but unavailing. [4] In the first place, when we are urged to find that a statute is intended to silently abrogate an established rule of law, we must heed the Supreme Court’s admonition that “it should not ‘be presumed that the Legislature in the enactment of statutes intends to overthrow long-established principles of law unless such intention is made clearly to appear either by express declaration or by necessary implication.’ [Citation.]” (Theodor v. Superior Court (1972) 8 Cal.3d 77, 92 [104 Cal.Rptr. 226, 501 P.2d 234]; see also McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn., supra, 231 Cal.3d at p. 1455.) [2d] In the second place, the owners’ reliance on Davert for negative inferences is off the mark. The clear holding of Davert is that tenants in common who delegate control and management of the property remain jointly and severally liable for tortious acts or omissions causing injury to third persons. We do not deem the court’s observation about the wisdom of retaining landowners’ liability where ownership is shared to be judicial advice that a tenant in[1631]common can buy his or her way out of liability by purchasing insurance for the property manager. [FN. 7]
III.
The owners attempt to justify the summary judgment with a number of other policy-type arguments to illustrate why we should rewrite section 1365.7. They assert the HOA’s liability insurance of $1 million is sufficient to take care of the needs of the Ruoffs, who would therefore suffer no detriment if liability were not imposed on the individuals. But even if we agreed with the proposition in the abstract-and we do not-the issue of sufficiency of the insurance policy would be a question of fact, inappropriate for determination by summary judgment. (Code Civ. Proc., § 437c, subd. (c).) [FN. 8]
The owners also contend that because the HOA can make assessments against the association members for pro-rata shares of any judgment exceeding the policy limits, immunity for the individuals will not work any hardship on the Ruoffs. But, as the Ruoffs astutely observe, “[p]roblems with this approach abound,” [FN. 9] and “the power to assess is not the panacea Defendants argue.” Indeed, it might prove to be a wholly illusory remedy.
The owners assert that under the HOA declaration of covenants, conditions and restrictions, the HOA is incorporated as a nonprofit mutual benefit[1632]corporation, therefore the members are entitled to immunity under Corporations Code section 7350, subdivision (a). [FN. 10] They argue that because the HOA is a corporation, the Ruoffs must look solely to the corporate assets. The problem with this contention is that the record does not establish the fact of incorporation. [FN. 11] Therefore, we express no opinion as to its merits. The judgments in favor of the owners are reversed and the matter remanded for further proceedings in accordance with this decision. The Ruoffs shall recover their costs on appeal.
Moore, Acting P. J., and Wallin, J., concurred.
FN 1. Summary judgments were granted in favor of Raymond J. Niksarian; Sonya Niksarian; Anne S. Bates; Frank Bates and Anne S. Bates, Trustees for the Trust Agreement of Frank F. Bates and Anne S. Bates; Warner Younis; Pat Younis; Judd L. Miller; William E. Hasbrouck; Robert Banks; Nancy Banks; Wendell F. Deeter and E. Violet Deeter as Trustees for the Deeter Family Revocable Trust; Ronald F. Lackey; Barbara A. Lackey; and Dorothy Auerbach.
FN 2. Civil Code section 1365.7 is part of the Davis- Stirling Common Interest Development Act ( Civ. Code, div. 2, pt. 4, ch. 1, § 1350 et seq.). The act provides conditional immunity from tort damages to “a volunteer officer or director who resides in the common interest development either as a tenant or as an owner of no more than two separate interests in that development.” See discussion, post.
All further statutory references are to the Civil Code unless otherwise specified.
FN 3. Code of Civil Procedure section 437c, subdivision (g) provides, in pertinent part: “Upon the grant of a motion for summary judgment … the court shall … specify the reasons for its determination,” referring to the evidence supporting and opposing which shows no triable issue exists.
When counsel asked the court to specify its reasons for granting the summary judgment motions, the court responded: “I have spent more time thinking about this than any other case in my inventory. I am incorporating every argument that the moving parties have made as the basis for my decision. I am throwing it all to the Fourth. [¶] Your briefs are the bases for your positions when the court of appeals [sic] deals with this issue. I will not make any independent findings.”
FN 4. The court’s order granting summary judgment states: “[T]he court finds as a matter of law that the aforementioned defendant homeowners did not breach any duty owed to the plaintiffs herein.” The record establishes that no factual evidence regarding the owners’ acts or omissions was before the court. The owners relied on the HOA’s liability policy, its internal rules, and declarations of individual owners who said they did not exercise control of the common areas.
FN 5. The Harbor Creek complex contains 152 units, and there is no dispute that the number of separate interests exceeds 100.
FN 6. When it enacted section 1365.7, the Legislature was also aware of the Uniform Common Interest Ownership Act of 1982, but did not adopt it. Under section 3-107 of the uniform act, an HOA is responsible for maintenance of the common areas of a condominium complex, unless the HOA’s declaration provides otherwise. Under section 3-113, individual unit owners are immune from civil liability for injuries occurring in the common areas if the HOA maintains sufficient liability insurance meeting certain standards and naming each condominium owner as an insured party with respect to liability based on his or her ownership of the common areas. Obviously, the Legislature and the authors of the uniform act took different paths.
FN 7. We also reject the owners’ half-hearted assertion that section 1365.7 violates equal protection under the federal and state Constitutions. The matter warrants little discussion. The owners say the immunity offered to the HOA’s volunteer officers and directors “is irrational … because the effect is to immunize those who are vested with control over the common area, and allow potential liability to remain with those who retain no control over the common area.” As the Ruoffs observe, there is no fundamental right or suspect class involved, thus the classification need only bear a rational relationship to a legitimate state purpose. (Weber v. City Council (1973) 9 Cal.3d 950, 959 [109 Cal.Rptr. 553, 513 P.2d 601].) The bill’s author stated: “This bill is greatly needed to protect the directors and officers of the 13,000-16,000 community interest associations in California that will need 30,000 to 40,000 volunteers to serve on the boards of these associations each year. That need may not be met as many people are not volunteering because they fear being sued.” (Letter dated Sept. 1, 1991, from Assemblywoman Lucy Killea to the Honorable George Deukmejian.)
FN 8. In light of the apparent irremediable nature of Martha’s injuries and the continuing accrual of medical expenses which are already approaching the $1 million policy limit, the owners appear to be blowing smoke when they claim the insurance is “sufficient.”
FN 9. The Ruoffs pose apt questions: “[W]hat happens to the current owners who sell their units before judgment? What happens to a unit owner whose individual insurance company denies coverage for an assessment in contract, but does [sic] over third party injuries occurring in common areas? What about those who sell after judgment, but before the assessment? What happens to a future unit owner whose individual insurance company denies coverage because the ‘loss’ preceded the commencement of the policy?”
FN 10. Corporations Code section 7350, subdivision (a) relieves members of a nonprofit mutual benefit corporation from personal liability for the debts, liabilities or obligations of the corporation.
FN 11. The only proof of incorporation offered is a copy of article II, section 2.01 of the HOA declaration, stating: “Organization of Association. The Association is or shall be incorporated under the name of Harbor Creek Community Association, as a corporation not for profit under the Nonprofit Mutual Benefit Corporation Law of the State of California.” This is hardly proof. Moreover, the various separate statements of undisputed facts in support of the summary judgment motions do not contain any reference to incorporation and member immunity. Finally, we do not even know if such a defense is at issue in the lawsuit because we have not been provided with a copy of the answers filed by the defendants.
Diamond Heights Village Association, Inc. v. Financial Freedom Senior Funding Corp.
[Assessment Collection; Judgment Lien Merger] When a HOA assessment lien is enforced by the HOA through judicial action, the debt secured by the assessment lien is merged into the judgment.
Ragghianti Freitas, David F. Feingold and Rodrigo D. Dias for Plaintiff and Appellant and for Plaintiff and Respondent.
Steyer Lowenthal Boodrookas Alvarez & Smith, Jeffrey H. Lowenthal, Carlos A. Alvarez and Benjamin R. Ehrhart for Defendant and Appellant and for Defendant and Respondent.
OPINION
[294] SEPULVEDA, J.
Plaintiff Diamond Heights Village Association, Inc. (Association), sued the owners of a condominium unit for failing to pay assessments levied for maintenance of common areas. The Association also sued Financial Freedom Senior Funding Corporation (Financial Freedom), which holds a deed of trust on the unit securing a reverse mortgage loan. In its single cause of action against Financial Freedom, the Association sought foreclosure of assessment liens and priority over the deed of trust. Financial Freedom obtained a summary judgment in its favor. A bench trial against the unit owners on other causes of action was held, at which the court partially voided Financial Freedom’s deed of trust.
The Association appeals the summary judgment for Financial Freedom, and Financial Freedom appeals the judgment on the remaining claims voiding its property interest. Financial Freedom also appeals the court’s attorney fee orders.
We affirm summary judgment for Financial Freedom on the lien foreclosure cause of action and reverse the judgment on the remaining claims to the extent it voids Financial Freedom’s deed of trust. The trial court erred in voiding Financial Freedom’s security interest in the property when Financial Freedom had not been joined as a party on the claims being tried, and final judgment had already been entered in its favor. We affirm the court’s attorney fee orders.
I. FACTS
The Association maintains a 396-unit residential condominium complex in San Francisco known as Diamond Heights Village. Diamond Heights Village is governed by a first restated declaration of covenants, conditions, and restrictions (CC&R’s) recorded in 1990. Under the CC&R’s, homeowners agree to pay assessments levied by the Association for maintenance of Diamond Heights Village. (See Civ. Code, § 1366 [authorizing assessments].)
[295]
A. Assessment liens
Mark Williams owned a unit in Diamond Heights Village and failed to pay the assessments. The Association recorded notices of delinquent assessment in 1994 and 1995. To avoid collection efforts by the Association and other creditors, Williams filed five separate bankruptcy petitions from 1995 to 1999, each of which was dismissed. Several days after the fifth bankruptcy petition was dismissed, Williams conveyed the Diamond Heights Village condominium unit to himself and his mother, Lois Crosby, as joint tenants. In 2000 and 2001, the Association recorded assessment liens against the condominium unit. (Civ. Code, § 1367.)
B. Judgment on assessment liens
In 2002, the Association obtained a default judgment against Williams for foreclosure of the assessment liens. The total amount of the judgment, including attorney fees and costs, was $39,199.[[1]] The Association did not record an abstract of judgment. The court issued a writ of execution for the sale of the unit to satisfy the judgment. Crosby, now a joint tenant of the unit, filed a petition for bankruptcy to evade the Association’s collection efforts. A second writ of execution was issued and a foreclosure sale was set for 2004, after Crosby’s bankruptcy petition was dismissed, but Williams filed a sixth bankruptcy petition on the day set for the sale. That bankruptcy petition, like all the others, was dismissed. Several months later, Williams and Crosby embarked on another transaction affecting the condominium unit before a foreclosure sale was conducted.
C. New first deed of trust
In October 2004, Crosby applied for a reverse mortgage with defendant Financial Freedom, a subsidiary of IndyMac Bank. A homeowner must be 62 years of age or older to qualify for a reverse mortgage with Financial Freedom. Crosby, born in 1920, qualified. Crosby’s application stated that there was an outstanding judgment against her and listed the Association among those holding a lien on the property.
Financial Freedom ordered a preliminary title report that noted title ownership by Crosby and her son, Williams, as joint tenants. The preliminary title report did not list the Association’s assessment liens despite their [296] recordation with the county recorder’s office. The Association’s judgment had not been recorded and was not listed in the title report.[[2]]
In November 2004, Financial Freedom obtained certification from the Association concerning certain features of Diamond Heights Village, such as unit ownership in fee simple and the provision of property and liability insurance. The Association also certified that there was nothing in the CC&R’s “that would prevent the placing of a first mortgage lien on an individual unit or would jeopardize the first lien status of such a mortgage due to future association assessments.” (Italics added.) Financial Freedom’s certification form did not ask if there were unpaid past assessments.
Financial Freedom completed the transaction in December 2004, creating a new first mortgage. Williams transferred his one-half interest in the unit to his mother, Crosby, giving her full title to the unit. Crosby then executed a deed of trust in favor of Financial Freedom to secure a reverse mortgage loan. The two documents—Williams’s grant deed and Crosby’s deed of trust—were notarized by the same person on the same date, and recorded within seconds of each other. Williams did not receive any consideration from his mother for the transfer of his ownership interest in the unit. In funding the loan, Financial Freedom paid off first and second deeds of trust totaling $219,935. Financial Freedom also paid $48,948 in cash to Crosby. Financial Freedom funded the loan in an amount no less than $278,505.
D. Amended judgment on assessment liens
An amended judgment against Williams and Crosby for foreclosure of the Association’s assessment liens was entered in 2005. The amended judgment included interest and costs incurred from the time of the original 2002 judgment and totaled $51,184. The Association did not record an abstract of judgment for the amended judgment. The Association obtained a writ of execution for the sale of the unit, but Crosby filed another petition for bankruptcy. The petition was later dismissed. The judgment was last renewed in January 2008 for an updated amount of $64,854.
E. Complaint to set aside fraudulent transfer and to foreclose lien
The Association learned of Financial Freedom’s first deed of trust at some point and, in an effort to establish priority for its assessments over Financial Freedom’s deed of trust, filed the present action in December 2007. The [297] Association stated six causes of action: setting aside fraudulent transfer; conspiracy; breach of contract (CC&R’s); foreclosure of a lien; open book account; and injunctive relief. All of the causes of action were stated against Williams and Crosby but only the fourth cause of action for foreclosure of a lien was stated against Financial Freedom. The fourth cause of action also named judgment creditor Hassen & Associates as a defendant. In that cause of action, the Association alleged that homeowners Williams and Crosby owed assessments amounting to $67,149 as of December 2007 (plus assessments accruing after filing of the complaint). It was further alleged that the homeowners had not satisfied the 2000 and 2001 assessment liens, nor the 2002 judgment and that those liens and judgment “remain valid and encumber the property.” The Association alleged that Financial Freedom’s 2004 deed of trust is subordinate to the liens and judgment held by the Association. While seeking judicial foreclosure of the assessment liens, the Association also stated its intention to reserve its right to enforce the existing judgment foreclosing the same liens.
F. Answers and cross-complaint
Financial Freedom answered the complaint raising several affirmative defenses, including the statute of limitations. It also filed a cross-complaint for declaratory relief and other claims. Financial Freedom asserted that it has a valid first lien against the Diamond Heights Village condominium unit and that it is “a bona fide encumbrancer with respect to said lien.” It sought a judicial determination of the rights and interests of itself and the Association in the property. Judgment creditor Hassen & Associates also answered the complaint. Homeowners Williams and Crosby never answered the complaint and their default was entered in March 2008.
G. Summary judgment motion
In February 2009, Financial Freedom moved for summary judgment on the Association’s complaint, which stated a single cause of action against Financial Freedom for foreclosure of liens. Financial Freedom noted that the Association did not have a judgment lien and was basing its priority claim upon the assessment liens. Financial Freedom argued that the Association’s action for foreclosure of the assessment liens, and the claimed priority under them, failed because (1) foreclosure of the assessment liens had already been litigated, reduced to judgment, and merged into that judgment; (2) foreclosure of the assessment liens was time-barred; and (3) the CC&R’s expressly subordinated assessment liens to first mortgage holders like Financial Freedom.
[298] Judge Charlotte Woolard ruled on the motion on May 6, 2009, and granted summary judgment on the first ground. The court ruled that the Association’s assessment liens merged into the judgment in the earlier foreclosure action against the homeowners, that the judgment was unrecorded, and that Financial Freedom’s recorded deed of trust thus had priority.
H. Judgment for Financial Freedom
Financial Freedom requested dismissal of its cross-complaint and sought entry of judgment in its favor. In June 2009, Judge Woolard entered a judgment in favor of Financial Freedom and against the Association decreeing that the Association “shall recover nothing, and shall obtain no relief, as against defendant Financial Freedom, in this action.” The court denied Financial Freedom’s motion for contractual attorney fees under the CC&R’s because there was “no privity” between Financial Freedom and the Association. (Civ. Code, § 1717.)
I. Trial of remaining claims
The Association’s remaining claims against homeowners Williams and Crosby and judgment creditor Hassen & Associates were tried before Judge Nancy Davis on May 26, 2009, a few weeks after Judge Woolard had granted summary judgment to Financial Freedom. The Association contended that Judge Woolard’s summary judgment ruling in Financial Freedom’s favor did not preclude Judge Davis from setting aside the alleged fraudulent conveyance and determining Financial Freedom’s security interest as a result of setting aside that conveyance. The court agreed and proceeded to resolve issues affecting Financial Freedom despite a dispositive ruling in Financial Freedom’s favor on the only cause of action against it and its absence from trial on the remaining claims. The only defendant appearing at trial was judgment creditor Hassen & Associates.
The court issued a statement of decision in August 2009. The court found that “the transfer from Williams to Crosby was fraudulent and must be set aside to the extent necessary to satisfy the Association’s claim” for assessments. The court noted that, “[a]t the time of the transfer, Williams and Crosby owned the Unit as Joint tenants, each owning an undivided one-half interest. As the transfer is set aside, the result is that Williams and Crosby remain joint tenants and were joint tenants at the time the deed of trust was granted to Financial Freedom by Crosby.” Crosby “could encumber her own one half interest, but could not encumber the one half interest in the Unit owned by Williams who, at the time, was a judgment debtor of the Association.” The court ruled that the deed of trust “conveyed by Crosby to Financial [299] Freedom is void to the extent [the deed] purported to encumber Williams’s one half interest” in the condominium unit.
The court’s statement of decision acknowledges that a fraudulent transfer is not voidable against “a person who took in good faith and for a reasonably equivalent value.” (Civ. Code, § 3439.08, subd. (a).) The court ruled that Financial Freedom was not a bona fide encumbrancer entitled to the protection of this statute because Financial Freedom “actively participated in the transfer from Williams to Crosby” and performed an inadequate title review that failed to discover the recorded assessment liens. The court also suggested that Financial Freedom forfeited any claim to bona fide encumbrancer status by dismissing its cross-complaint for declaratory relief and choosing not to appear at trial.
J. Judgment for the Association
The court entered a judgment in August 2009 ordering the Diamond Heights Village condominium unit sold and declaring the rights of the Association, homeowners, Financial Freedom, and judgment creditor Hassen & Associates to the proceeds of the sale. The court declared Hassen & Associates to have senior position, with right of first payment. The court ordered the remaining funds held until any appeal was resolved and, thereafter, “divided between the Association and Financial Freedom in accordance with their one-half secured interest” in the unit. The court awarded the Association $89,562 for assessments through May 2009, payable from Williams’s one-half interest in the property. The court also awarded the Association attorney fees against the homeowners under the CC&R’s, later assessed at $82,086, to be paid from Williams’s property interest. Financial Freedom was left with just Crosby’s original one-half interest in the property to secure its mortgage loan and payments of at least $278,505. Sale proceeds from that one-half interest may be insufficient to pay the full amount owed to Financial Freedom.
In September 2009, Financial Freedom filed a motion to vacate the judgment. Financial Freedom argued that the court had no jurisdiction to enter a judgment affecting Financial Freedom’s deed of trust because (1) the prior summary judgment fully adjudicated the Association’s single cause of action against Financial Freedom, (2) the Association’s appeal of the summary judgment divested the court of jurisdiction before the court ruled on the remaining claims affecting Financial Freedom’s interest, and (3) Financial [300] Freedom was not a defendant on the Association’s remaining claims and not a party to the trial. The court denied the motion in February 2010.
K. The appeals
We are presented with three related appeals, which we have consolidated for purposes of briefing, argument, and decision. On the summary judgment in Financial Freedom’s favor on the foreclosure cause of action: the Association appeals the judgment and Financial Freedom separately appeals the post judgment order denying it attorney fees. On the judgment following trial in the Association’s favor on the cause of action for fraudulent conveyance and all other remaining claims: Financial Freedom appeals both the judgment (and order denying its motion to vacate the judgment) and the post judgment order awarding the Association attorney fees.
II. DISCUSSION
A. Summary judgment was properly granted to Financial Freedom
As noted above, the Association recorded assessment liens against the Diamond Heights Village condominium unit in 2000 and 2001. (Civ. Code, § 1367.) In 2002, the Association obtained a default judgment against homeowner Williams for foreclosure of the assessment liens. The Association did not record an abstract of judgment. The court issued writs of execution for the sale of the unit to satisfy the judgment but the homeowners’ petitions for bankruptcy stayed proceedings and prevented levy. It was at this juncture that Williams conveyed his one-half interest in the property to his joint tenant and mother, Crosby, and she then mortgaged the entire property to Financial Freedom.
The Association then filed a new complaint in which it asserted a single cause of action against Financial Freedom for foreclosure of the Association’s assessment liens and sought priority over Financial Freedom’s deed of trust. Financial Freedom moved for summary judgment arguing, among other things, that the Association’s action for foreclosure of the assessment liens, and claimed priority under them, failed because foreclosure of the assessment liens had already been litigated, reduced to judgment, and merged into that judgment. Judge Woolard granted the motion. The court ruled that the Association’s assessment liens merged into the judgment from the earlier foreclosure action against the homeowners, the judgment was unrecorded, and Financial Freedom’s recorded deed of trust thus had priority.
(1) The court was correct. A condominium assessment becomes a debt of the owner when the assessment is levied by the condominium association. [301] (Civ. Code, § 1367.1, subd. (a).) “The debt is only a personal obligation of the owner, however, until the community association records a `notice of delinquent assessment’ against the owner’s interest in the development. Recording this notice creates a lien and gives the association a security interest in the lot or unit against which the assessment was imposed.” (Sproul & Rosenberry, Advising Cal. Common Interest Communities (Cont.Ed.Bar 2003) § 5.36, p. 328 [hereafter, Common Interest Communities]; see Civ. Code, § 1367, subd. (d).) The lien dates from the time the lien is properly recorded. (Thaler v. Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1100-1102 .) “California follows the `first in time, first in right’ system of lien priorities.” (Id. at p. 1099.) Condominium assessment liens follow this same system. An assessment lien is “prior to all other liens recorded subsequent to the notice of assessment, except that the [CC&R’s] may provide for the subordination thereof to any other liens and encumbrances.”[[3]] (Civ. Code, § 1367, subd. (d).)
(2) It is generally understood that a lien is not a debt but acts as “security for payment of a debt or other obligation.” (4 Cal. Real Estate (3d ed. 2003) § 10:128, p. 395 (rel. 11/2003); see Civ. Code, § 2872.) The debt is the assessment, which is secured by the assessment lien. An assessment lien may be enforced “in any manner permitted by law,” including judicial foreclosure. (Civ. Code, § 1367, subd. (e).) When an assessment lien is enforced through judicial action, the debt secured by the lien is merged into the judgment. The doctrine of merger is an aspect of res judicata. (Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1510.) “Under that aspect a claim presented and reduced to judgment merges with the judgment and is thereby superseded. [Citation.] The claimant’s remedy thereafter is to enforce the judgment; he may not reassert the claim.” (Ibid.)
“[W]hen a final judgment is entered, all causes of action arising from the same obligation are merged into the judgment and all alternative remedies to enforce that obligation extinguished by the judgment granting one of those remedies. [Citation.] The creditor cannot thereafter enforce the original obligation, because the judgment `”. . . creates a new debt or liability, distinct from the original claim or demand, and this new liability is not merely evidence of the creditor’s claim, but is thereafter the substance of the claim itself.”‘ ([Citation,] italics in original.) In other words, the . . . judgment extinguishes the contractual rights and remedies previously extant, [302] substituting in their place only such rights as attach to a judgment.” (O’Neil v. General Security Corp. (1992) 4 Cal.App.4th 587, 602.)
(3) Once a judgment is obtained, the judgment creditor may create a judgment lien by recording an abstract of judgment or may choose to levy execution, thereby creating an execution lien. (Code Civ. Proc., §§ 674, 697.710; Kahn v. Berman (1988) 198 Cal.App.3d 1499, 1507, fn. 7.) An execution lien does not arise when a writ of execution is issued by the court, but rather when the levying officer levies the property (constructively seizes it) by recording a copy of the writ of execution and notice of levy. (Code Civ. Proc., §§ 697.710, 700.010, 700.015, subd. (a); Kahn, supra, at p. 1508; see generally 8 Witkin, Cal. Procedure (5th ed. 2008) Enforcement of Judgment, § 99, p. 143.) The record here does not show that a levy ever occurred to create an execution lien, and the Association makes no claim to having an execution lien. The Association relies exclusively upon its assessment liens, despite having already foreclosed those liens in a 2002 judgment. The claim is unavailing. Those liens were foreclosed and the debts they secured were merged into the judgment. The Association’s remedy was to record the judgment, in which case the judgment lien would have given the Association priority over Financial Freedom. (Code Civ. Proc., § 697.310 et seq.)
(4) The Association seems to argue that an assessment lien lasts forever, even if foreclosed in a prior proceeding. This is incorrect. A lien is not a debt but acts as “security for payment of a debt or other obligation.” (4 Cal. Real Estate, supra, § 10:128, p. 395 (rel. 11/2003).) All liens are “extinguished by the lapse of time” if an enforcement action is not timely pursued on the principal obligation.[[4]] (Civ. Code, § 2911, subd. 1.) Where an action is timely pursued, the debt secured by the lien merges into the judgment. The judgment then becomes the debt. The judgment is enforceable for a period of 10 years, and longer if renewed. (Code Civ. Proc., §§ 683.020, 683.120, subd. (b).) (5) The Association has an enforceable judgment. It does not, however, have a lien on the property because the assessment liens and underlying debts merged into the judgment and the judgment was not recorded.
The Association argues that application of the merger doctrine under these circumstances creates the anomalous situation of a condominium association losing priority the moment a judgment is entered on an assessment. The Association argues that assessment liens should work like real estate attachment liens imposed during litigation. Where an attachment lien is in effect, a [303] judgment lien created on the same property relates back to the date the attachment lien was created and preserves the judgment creditor’s original priority. (Code Civ. Proc., § 697.020, subd. (b).) But a judgment itself does not relate back to the date of the attachment liens—it is the judgment lien that does so. Here, there is no judgment lien. The Association, therefore, has an unsecured judgment and may pursue enforcement against the homeowners. The Association may not, however, relitigate foreclosure of its assessment liens in an effort to achieve priority over Financial Freedom’s deed of trust.
The Association maintains that it is not really relitigating the assessments but, instead, the fraudulent conveyance that gave Financial Freedom a deed of trust. But Financial Freedom was not named as a defendant in the fraudulent conveyance cause of action. Financial Freedom was named as a defendant in a single cause of action for judicial foreclosure of the assessment liens. In that cause of action, the Association sought recovery against the homeowners for past assessments and alleged that the 2000 and 2001 liens encumber the property to secure the assessments. Those allegations were asserted, and adjudicated, in prior litigation. They may not be relitigated now. The trial court properly granted summary judgment to Financial Freedom on the Association’s cause of action to foreclose the previously litigated assessments liens.
B. The trial court erred in rendering a judgment on remaining claims that impaired Financial Freedom’s interests
The trial court granted defendant Financial Freedom summary judgment on the only cause of action stated against it. The order was filed on May 6, 2009. Financial Freedom then dismissed its cross-complaint, and Judge Woolard entered judgment for Financial Freedom on June 3, 2009. The judgment decreed that the Association “shall recover nothing, and shall obtain no relief, as against defendant Financial Freedom, in this action.”
Trial of the Association’s remaining claims against other defendants commenced before Judge Davis on May 26, 2009, and judgment was entered on August 17, 2009. Trial of those remaining claims was proper, including trial of the Association’s cause of action against the homeowners for fraudulent conveyance of their condominium unit. It was not proper, however, to void Financial Freedom’s security interest in the property (in whole or part) when Financial Freedom had not been joined as a party to the fraudulent conveyance cause of action, and final judgment had already been entered in its favor.
The Association brought its first cause of action to set aside a fraudulent transfer of real property against homeowners Williams and Crosby. A transfer is fraudulent if the debtor made the transfer “[w]ith actual intent to hinder, [304] delay, or defraud any creditor of the debtor,” “[w]ithout receiving a reasonably equivalent value in exchange for the transfer,” and with the intent to incur debts beyond the debtor’s ability to pay. (Civ. Code, § 3439.04, subd. (a)(1), (2).) Here, the Association alleged that Williams fraudulently conveyed his one-half interest to Crosby for no consideration in order to evade his debt to the Association, and that the transfer left Williams insolvent. The Association further alleged that Crosby was complicit in the fraudulent scheme. Crosby, once she obtained full ownership of the property, took out a reverse mortgage loan and made Financial Freedom the beneficiary of a deed of trust securing the loan. The Association did not allege that Financial Freedom participated in the homeowners’ fraudulent scheme. In fact, the Association did not name Financial Freedom as a defendant in its action to set aside the alleged fraudulent conveyance. Nor did the Association name the trustee of the deed of trust, Alliance Title Company. The Association’s position, adopted by Judge Davis, was that the court could void Financial Freedom’s security interest in the conveyed property despite Financial Freedom’s nonjoinder. This was error.
(6) The Association was free to exclude Financial Freedom from the fraudulent conveyance cause of action if it sought only a personal judgment against Williams and Crosby. But if the Association wanted to void Financial Freedom’s interest in the property, it should have joined the deed beneficiary as a party. (Code Civ. Proc., § 379.) Transferees are necessary parties “in an action to declare a transfer void as fraudulent.” (Heffernan v. Bennett & Armour (1952) 110 Cal.App.2d 564, 586-587.) Williams transferred his one-half interest to Crosby, making her the principal transferee, but the transaction also included Crosby’s execution of a deed of trust benefitting Financial Freedom. The Association may not void the deed of trust without joining Financial Freedom as a party and giving it an opportunity to defend the transfer. Trust beneficiaries, like Financial Freedom, “are necessary parties to an action affecting the security of a deed of trust.” (Monterey S.P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454, 461; accord, Sylvester v. Sylvester (Alaska 1986) 723 P.2d 1253, 1259-1260 [mortgagee a necessary party in fraudulent conveyance action to set aside mortgage].) A deed of trust is, in practical effect, a mortgage with a power of sale. (Monterey S.P. Partnership, supra, at p. 460.) A respected commentator on the law has noted that a mortgagee is not indispensable to a fraudulent conveyance action “if the conveyance is to be set aside subject to the mortgage, . . . [b]ut where the suit is to set aside a previously given mortgage as fraudulent, then the mortgagee is a proper party defendant.” (3A Moore, Moore’s Federal Practice (2d ed. 1996) ¶ 19.09[6], p. 19-191.) The Association argues that Financial Freedom’s absence from the trial is the fault of Financial Freedom itself because it dismissed its cross-complaint seeking a declaration of its interests. This is incorrect. [305] Financial Freedom was entitled to abandon its cross-complaint after obtaining summary judgment in its favor on the only cause of action stated against it in the complaint. It was the Association’s obligation, as plaintiff in the fraudulent conveyance cause of action, to name parties necessary to obtaining the relief it sought.
The judgment voiding Financial Freedom’s interest in the property is also defective in another respect. Judge Woolard granted Financial Freedom’s summary judgment motion on May 6, 2009, and entered judgment on June 3, 2009. Judge Davis did not enter judgment on the remaining claims until August 17, 2009, over two months after Financial Freedom obtained a judgment decreeing that the Association “shall recover nothing, and shall obtain no relief, as against defendant Financial Freedom, in this action.” Judge Davis’s judgment also came after the Association appealed Judge Woolard’s judgment in Financial Freedom’s favor. Despite that final decree, and its appeal, Judge Davis issued a judgment granting the Association relief against Financial Freedom. Judge Davis voided Financial Freedom’s deed of trust as to one-half of the property and gave the Association priority over Financial Freedom on that half. This, too, was error.
(7) Judge Woolard properly entered judgment for Financial Freedom in this multiple defendant action after adjudicating the single cause of action stated against it. (Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 437.) “A judgment is the final determination of the rights of the parties in an action or proceeding.” (Code Civ. Proc., § 577, italics added.) “It is elementary that where a tribunal has jurisdiction over the parties and the subject matter, the jurisdiction continues until a final judgment is entered. . . .” (Riley v. Superior Court (1957) 49 Cal.2d 305, 309, italics added.) The court lost jurisdiction over Financial Freedom once judgment was entered in its favor, and thus had no power to void its property interest in the condominium unit.
Therefore, we must reverse the judgment entered by Judge Davis and remand the case with directions to enter a judgment affecting the rights only of those defendants properly before it: homeowners Williams and Crosby and judgment creditor Hassen & Associates. The judgment shall not invalidate any part of Financial Freedom’s deed of trust or otherwise impair its interests in the property.
C. The trial court was correct in ruling that Financial Freedom is not entitled to attorney fees
(8) Attorney fees incurred to enforce a contract are recoverable by the party prevailing on the contract if the contract specifically provides for such [306] recovery. (Civ. Code, § 1717.) The Diamond Heights Village CC&R’s contain several attorney fee provisions. The CC&R’s state that the Association may maintain a lawsuit against a unit owner for delinquent assessments, and that any judgment against the owner shall include an award of reasonable attorney fees. The Association is also entitled to attorney fees, according to the CC&R’s, in a court action to foreclose assessment liens. The CC&R’s also contain a general attorney fee provision, which states that the Association, or any owner, has the right to enforce the CC&R’s and is entitled to recover attorney fees in such an action.
The Association, in its foreclosure cause of action against the homeowners, Financial Freedom, and judgment creditor Hassen & Associates, included in its complaint a plea for an award of contractual attorney fees against the homeowners. The Association did not request attorney fees against Financial Freedom. Nevertheless, Financial Freedom filed a motion for contractual attorney fees after obtaining summary judgment in its favor. The court denied the motion, and Financial Freedom challenges that denial on appeal. The trial court was correct.
Civil Code section 1717, subdivision (a) provides in pertinent part that “[i]n any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.”
(9) Civil Code “[s]ection 1717 was enacted to establish mutuality of remedy where [a] contractual provision makes recovery of attorney’s fees available for only one party [citations], and to prevent oppressive use of one-sided attorney’s fees provisions.” (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128.) In this case, for example, the attorney fee provision in the CC&R’s entitling the Association to attorney fees if it prevailed in an action against a condominium unit owner would reciprocally entitle the owner to fees should he or she prevail.
Civil Code section 1717 is also interpreted “to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney’s fees should he prevail in enforcing the contractual obligation against the defendant.” (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at p. 128.) Thus, a [307] defendant who did not sign the contract containing the fee provision was held to be entitled to attorney fees where the defendant was unsuccessfully sued as an alleged coventurer bound by the contract. (Ibid.) Had the plaintiff in that case prevailed on its claim, the defendant would have had to pay the plaintiff’s attorney fees. (Ibid.) The court reasoned that the defendant therefore had a reciprocal right to fees when she prevailed. (Id. at p. 129.)
These principles do not aid Financial Freedom because the Association did not sue Financial Freedom under the CC&R’s, never sought fees against Financial Freedom under the CC&R’s, and was not entitled to fees against Financial Freedom had the Association prevailed. Civil Code section 1717 covers signatories to a contract containing a fee provision and those who are sued as alleged parties to the contract or otherwise alleged to be bound by its terms. The Association never alleged that Financial Freedom was bound by the CC&R’s. The Association included Financial Freedom in the cause of action for judicial foreclosure of liens because Financial Freedom claimed a senior lien that the Association disputed. The action between the Association and Financial Freedom rested upon a legal question as to lien priority, not contractual enforcement of the CC&R’s.
Financial Freedom argues that it is nevertheless entitled to fees because “as a practical matter” Financial Freedom, and not the legally liable homeowners, would have had to bear the cost of the fees if the Association prevailed against the owners. Financial Freedom reasons as follows: if the Association prevailed on its judicial foreclosure claim and assertion of lien priority, the Association would have been entitled to fees against the homeowners under the CC&R’s. Those fees, as a debt of the homeowners, would have been paid to the Association from the sale proceeds before Financial Freedom, as a junior lienholder on half the property, received any proceeds (or Financial Freedom would have to pay the Association’s secured debt and fees to protect Financial Freedom’s property interest and avoid foreclosure of the property). Financial Freedom argues that this collateral economic consequence of a foreclosure action entitles it to fees.
Financial Freedom’s argument relies upon Saucedo v. Mercury Sav. & Loan Assn.(1980) 111 Cal.App.3d 309 (Saucedo). In Saucedo, home buyers took the property subject to an existing loan secured by a deed of trust. (Id. at p. 311.) The deed holder refused to allow the purchasers to assume the loan without paying a transfer fee and increased interest, and threatened to enforce a due-on-sale clause requiring full payment of the loan. (Ibid.) The purchasers filed a successful suit to enjoin the deed holder from [308] enforcing the due-on-sale clause, and the court held that they were entitled to attorney fees. (Id. at pp. 312, 315.) The court found that the purchasers would not have been liable for fees had the deed holder prevailed because the loan note was between the deed holder and prior owner but also found that “as a . . . practical matter” the purchasers would have to pay off the secured debt, including attorney fees, if they wanted to prevent foreclosure and retain their home. (Id. at p. 315.) The court concluded that “[t]his practical `liability’ of the nonassuming grantee [purchaser] is sufficient to call into play the remedial reciprocity established by Civil Code section 1717.” (Ibid.) Since the purchasers would, “as a real and practical matter” be required to pay attorney fees incurred by the deed holder to prevent foreclosure, the purchasers were entitled to recover attorney fees when they prevailed in a declaratory relief action that forestalled foreclosure. (Ibid.)
There are distinguishing points between Saucedo and this case. A central point of distinction is that the purchasers who recovered fees in Saucedo were the successors in interest to the property subject to the promissory note containing the disputed due-on-sale clause and fee provision. (See Leach v. Home Savings & Loan Assn. (1986) 185 Cal.App.3d 1295, 1304-1306 [distinguishing and limiting Saucedo].) Here, the Association and Financial Freedom are complete strangers to each other, and the dispute rests upon the priority of competing security interests established by separate documents (an assessment lien and a deed of trust). The case resembles Clar v. Cacciola (1987) 193 Cal.App.3d 1032, 1037-1039 more than it resembles Saucedo, supra, 111 Cal.App.3d at page 315. In Clar, this District Court of Appeal refused to extend the reciprocal attorney fee provision of Civil Code section 1717 where the parties advanced competing claims on the priority of two deeds of trust. (Clar, supra, at pp. 1038-1039.) The prevailing defendants in Clar claimed a right to recover attorney fees because, had they lost, the plaintiffs’ attorney fees would have been added to the secured debt under the terms of the deed of trust, which the defendants would have had to pay “to prevent foreclosure and protect their equity in the property.” (Id. at p. 1037.) The court held that the defendants’ potential obligation to pay fees was too speculative. (Id. at pp. 1037-1038.)
(10) Likewise, Financial Freedom’s claim for attorney fees stretches Civil Code section 1717 too far. The statute is meant to prevent “oppressive use of one-sided attorney’s fees provisions” (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at p. 128), not to abolish the general rule that each party pay its own attorney fees. It is one thing to grant nonsignatories the right to attorney fees where they are sued as if they were contracting parties liable for fees or otherwise held to the terms of the contract, and quite another to grant nonsignatories the right to attorney fees where no legal liability for fees was ever asserted and only an attenuated economic impact is threatened. The “practical liability” approach advocated by Financial Freedom is fraught with [309] peril. As one commentator has noted, “[i]n practical liability . . . cases, courts must make very fact specific analyses about the prevailing party’s potential liability had [he or] she lost. Nearly identical factual circumstances could yield entirely different results. The danger with analyzing the prevailing party’s practical liability is subjectivity and lack of guidelines for the courts to follow.” (Miller, Attorneys’ Fees for Contractual Non-Signatories Under California Civil Code Section 1717: A Remedy in Search of a Rationale (1995) 32 San Diego L.Rev. 535, 578-579, fn. omitted.) We decline Financial Freedom’s invitation to embark on this course.
D. The Association was entitled to attorney fees against the homeowners
As noted earlier, claims against the remaining defendants were tried after defendant Financial Freedom obtained summary judgment. Following that trial, the court awarded the Association, as the prevailing party, attorney fees against defendant homeowners Williams and Crosby under the CC&R’s and a statute authorizing fee recovery in a condominium association’s action to collect delinquent assessments. (Civ. Code, §§ 1717, 1366, subd. (e)(1).) Financial Freedom does not deny the validity of these fee provisions but argues that fees should have been denied in this instance because “as a practical matter” Financial Freedom as a junior lienor on one-half of the foreclosed property, not the homeowners, will bear the economic impact of the fee award. We again note our reluctance to embrace the practical liability approach to Civil Code section 1717 but have no occasion to discuss it further here. We are reversing the judgment to the extent that it voided Financial Freedom’s senior lienor status on the property, and thus no adverse economic impact attends the court’s order awarding fees to the Association against the homeowners. Financial Freedom’s objection to the fee award is therefore moot.
III. DISPOSITION
The June 3, 2009 judgment in favor of Financial Freedom is affirmed. The August 17, 2009 judgment in favor of the Association is reversed to the extent that it voided, in whole or part, Financial Freedom’s deed of trust on the property. The case is remanded with directions to amend the judgment consistent with the views expressed in this opinion, and to permit Financial Freedom an opportunity to address the court concerning amendment at any hearing conducted on the matter.
The September 24, 2009 order denying Financial Freedom attorney fees against the Association is affirmed. The February 8, 2010 order granting the Association attorney fees against Williams and Crosby is affirmed.
[310] The parties shall bear their own costs and attorney fees incurred on these appeals.
Ruvolo, P. J., and Rivera, J., concurred.
[1] Monetary amounts are rounded to the nearest dollar in this opinion.
[2] The title report did list an abstract of judgment in favor of Hassen & Associates in the amount of $6,438 that was recorded in 1996. On appeal, it is undisputed that Hassen & Associates has a judgment lien superior to the secured interest of the Association and Financial Freedom.
[3] To ensure financeability of condominiums, most CC&R’s “provide that the association’s lien is subordinate to the lien of any first deed of trust” regardless of when recorded, and Financial Freedom argued as an alternative basis for summary judgment that the CC&R’s here are no exception. (Common Interest Communities, supra, § 5.46 p. 339, italics added; see generally 9 Miller & Starr, Cal. Real Estate (3d ed. 2001) §§ 25B:92, 25C:57, pp. 25B-181 to 25B-185, 25C-182 to 25C-183 (rel. 10/2007) [hereafter, Cal. Real Estate].) We resolve the summary judgment on the ground adopted by the trial court and thus do not reach that issue.
[4] As yet another alternative basis for summary judgment, Financial Freedom argued that the Association’s 2007 action to foreclose on the 2000 and 2001 liens was time-barred. (See Cause of Action to Enforce Condominium Assessment (1989) 20 Causes of Action 827, § 9, accessible on Westlaw, database updated Sept. 2010 [assessment liens subject to statute of limitations].) We need not reach that issue.