[Elections; Legal Challenges] Where a HOA prevails in an action brought against it on the basis of alleged election violations, the HOA is not entitled to recover its attorney’s fees even where the action is found to be frivolous.
COUNSEL
Dinh Ton That, in pro. per., for Plaintiff and Appellant.
Law Offices of Nicholas T. Basakis and Nicholas T. Basakis for Defendant and Respondent.
OPINION
MOORE, J. —
Plaintiff Dinh Ton That disagreed with the results of a recall election conducted by his homeowners association. He first brought a small claims action, then a writ of mandate, and then the instant action, asserting violations of association rules and the relevant statutory scheme. Defendant Alders Maintenance Association demurred to his complaint, arguing the statute of limitations had run on his first cause of action. The court sustained the demurrer. Plaintiff amended his complaint, adding a second cause of action under Business and Professions Code section 17200. Defendant again demurred, arguing a number of reasons why such a claim could not be maintained. The court sustained the second demurrer without leave to amend. [1422] The court also awarded defendant attorney fees of approximately $15,000. Plaintiff argues this should be reversed because the relevant statute does not specify that prevailing associations are entitled to attorney fees.
(1) In the unpublished portion of this decision, we agree with defendant that the one-year statute of limitations bars plaintiff’s first cause of action. In the published portion, we agree with defendant that in the present context, a homeowners association is not a “business” within the meaning of Business and Professions Code section 17200. We agree with plaintiff, however, that the relevant statute does not permit the association to recover attorney fees, despite our agreement with the trial court’s conclusion that the action was frivolous.
I. FACTS AND PROCEDURAL HISTORY
Plaintiff is a homeowner in The Alders, a 248-unit condominium complex in Irvine. The Alders is maintained and governed by defendant. In early 2009, a number of homeowners, including plaintiff,[1] attempted a recall of the sitting board of directors. The recall election took place on February 9. It did not, however, achieve a quorum, which required 50 percent of the membership to be present in person or by proxy. While 124 members were required for a quorum, 119 members were present at the meeting. A motion was made by director Joseph Brockett to close the meeting, and the motion was seconded and approved. According to defendant, prior to the meeting’s closure, no motion was made to adjourn the meeting to a later time. One member did raise the question of an adjournment after the meeting was closed, but the closure of the meeting prevented further official business. The closure of the meeting without adjournment[2] essentially concluded the recall effort.
On February 26, plaintiff filed a small claims action seeking $500 as a civil penalty. He alleged defendant and certain individuals “wrongfully … required a quorum” and failed to give the members present an opportunity to adjourn the meeting. Plaintiff also sought injunctive relief that would require defendant to bring the 119 proxies and ballots to the court hearing and require counting by an independent third party. On March 6, the small claims court filed an order stating that it had determined “Small Claims court does not have jurisdiction to monitor elections.” Plaintiff filed a dismissal without prejudice on April 8.
[1423] On March 9, plaintiff filed a verified “Emergency Petition for Peremptory Writ of Mandate in the First Instance as well as for an Alternative Writ” in superior court. He sought a court order directing defendant to conduct the recall election at an adjourned meeting with a smaller quorum. On March 20, the court denied the petition as well as plaintiff’s request for reconsideration.
Plaintiff appealed on May 19, 2009. (That v. Alders Maintenance Association (Oct. 1, 2009, G042070) [app. dism.].) That case was briefed, but while the matter was pending, defendant conducted its regular annual election on July 29. Defendant filed a motion to dismiss the appeal, which we granted on October 1, 2009, on the grounds that it was moot. The remittitur was issued on December 1.
Once back in the trial court, plaintiff sought leave to amend his complaint to state a cause of action for “Declaratory, Injunctive Relief and Civil Penalties per [Civil Code] § 1363.09.” In addition to declaratory and injunctive relief (the precise nature of which is unclear), plaintiff sought $2,000 in civil penalties for violating the Civil Code relating to association election laws.
The motion for leave to amend was initially set for hearing on February 1, 2010. On December 21, 2009, at a case management conference, the hearing was continued to March 1, 2010, at the request of defendant’s counsel on grounds of medical necessity. At that hearing, plaintiff acknowledged that his claim was governed by a one-year statute of limitations.
On March 1, the court denied the motion for leave to amend, finding that a writ petition was not a pleading which was subject to amendment under Code of Civil Procedure, section 473, subdivision (a)(1). Further, plaintiff had not met the necessary procedural requirements.
Plaintiff then filed the instant action on March 5, 2010, nearly 13 months after the February 9, 2009 recall election. On April 28, he filed a first amended complaint (FAC) which purported to allege “Violation of Article 2 of Chapter 4 of Title 6 of Part 4 of Division 2 of the Civil Code, Including Section 1363.03(b), for Declaratory and Injunctive Reliefs [sic] and Civil Penalties Under Civil Code Section 1369.09.” The FAC sought adjudication of the same issues raised in the writ petition, specifically whether defendant and its agents had acted properly during the attempted recall election on February 9, 2009. Plaintiff sought the court’s decision on a number of “issues [1424] to be decided and permanent injunctions requested.” Plaintiff requested civil penalties under Civil Code section 1363.09, subdivision (b), alleging four violations and $2,000 in penalties. He also requested the court’s decisions be “published” to all members of the association.
Defendant filed a demurrer, arguing the FAC failed to state a claim upon which relief could be granted. Defendant argued that the FAC was time-barred by Civil Code section 1363.09, subdivision (a), which states that a cause of action for violating laws relating to association elections must be brought “within one year of the date the cause of action accrues.” Plaintiff opposed, arguing judicial and equitable estoppel among other reasons why the demurrer should be overruled. The court sustained the demurrer, but granted plaintiff leave to amend to state another cause of action.
Plaintiff then filed his second amended complaint, which purported to state causes of action for “Violation of Article 2 of Chapter 4 of Title 6 of Part 4 of Division 2 of the Civil Code, Including Section 1363.03(b), for Declaratory and Injunctive Reliefs [sic] and Civil Penalties Under Civil Code Section 1369.09, for Violation of [Business and Professions Code] Sections 17200 et seq., for Declaratory and Injunctive Reliefs [sic] and Restitution Thereunder.” The first cause of action was essentially identical to the FAC. The second cause of action alleged defendant violated the unfair competition law (UCL), Business and Professions Code section 17200 et seq.
Defendant demurred to the second cause of action, arguing the facts in this case, specifically, the conduct of an association recall election, did not state a cause of action under the UCL as a matter of law. Defendant also moved to strike the first cause of action, arguing it was identical to the FAC, which had been the subject of a successful demurrer, as well as parts of the prayer for relief. Plaintiff opposed, offering a number of arguments on both the demurrer and motion to strike. The trial court granted the motion to strike and sustained the demurrer without further leave to amend, noting plaintiff had not met the actual injury requirement for claims under the UCL.
On January 10, 2011, the trial court granted defendant’s motion for attorney fees and awarded $15,020.50 pursuant to Civil Code section 1363.09, subdivision (b). The court found some of plaintiff’s actions, including filing a complaint barred by the statute of limitations, “frivolous.” Plaintiff filed his appeal on February 9, 2011, and also sought writ relief, which we denied in case No. G044799.
[1425] II. DISCUSSION
Plaintiff seeks review of the trial court’s decisions to sustain the demurrers to the FAC and SAC (second amended complaint), and to grant attorney fees to defendant.[3]
A. Standard of Review for Demurrers
“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.]” (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].)
While a general demurrer admits all facts that are properly pleaded, the “`court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.]'” (Soliz v. Williams (1999) 74 Cal.App.4th 577, 584 [88 Cal.Rptr.2d 184].)
B. Relevant Statutory Law
(2) The Davis-Stirling Common Interest Development Act (the Davis-Stirling Act) (Civ. Code, § 1350 et seq.) governs homeowners associations. The Davis-Stirling 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].)
[1426] (3) Civil Code section 1363.03 et seq. govern association election procedures. Civil Code section 1363.09 creates a right of action for violation of those procedures: “A member of an association may bring a civil action for declaratory or equitable relief for a violation of this article by an association of which he or she is a member, including, but not limited to, injunctive relief, restitution, or a combination thereof, within one year of the date the cause of action accrues….” (Civ. Code, § 1363.09, subd. (a).) The same section permits a court to void an election if it concludes that election procedures were not followed. (Ibid.)
Civil Code section 1363.09, subdivision (b) (hereafter subdivision (b)) states: “A member who prevails in a civil action to enforce his or her rights pursuant to this article shall be entitled to reasonable attorney’s fees and court costs, and the court may impose a civil penalty of up to five hundred dollars ($500) for each violation, except that each identical violation shall be subject to only one penalty if the violation affects each member of the association equally. A prevailing association shall not recover any costs, unless the court finds the action to be frivolous, unreasonable, or without foundation.”
C. Statute of Limitations on Plaintiff’s Civil Code Section 1363.09 Claim[*]
D. Plaintiff’s Business and Professions Code Section 17200 Claim
(4) Plaintiff’s second cause of action, offered to circumvent the statute of limitations on the first, is under the UCL. The UCL is codified in Business and Professions Code section 17200 et seq. Section 17200 prohibits any “unlawful, unfair or fraudulent business act or practice.” (Italics added.)
We cannot find, and plaintiff does not cite, a single published case[7] in which a homeowners association has been treated as a “business” under the UCL, and we are unpersuaded by plaintiff’s claims in favor of such a reading of the statute. Plaintiff argues that associations are businesses, citing O’Connor v. Village Green Owners Assn. (1983) 33 Cal.3d 790 [191 Cal.Rptr. 320, 662 P.2d 427]. That case is readily distinguishable. In O’Connor, the [1427] California Supreme Court held that an association was a “business establishment” under the Unruh Civil Rights Act (Civ. Code, §51). Treating associations as businesses in that context is consistent with — and indeed, necessary for — fulfilling the fundamental purposes of that statutory scheme, the protection of civil rights.
The UCL’s purpose does not require the same broad construction of the word “business.” “The UCL’s purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. [Citation.]” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949 [119 Cal.Rptr.2d 296, 45 P.3d 243].) An association does not participate as a business in the commercial market, much less compete in it. The dispute here is not related to any activity that might be deemed in the least bit commercial. Indeed, it is solely related to the conduct of association elections, a subject covered thoroughly by the Davis-Stirling Act itself. (Civ. Code, § 1363.03 et seq.)
(5) We do not foreclose entirely the notion that the UCL could apply to an association. If, for example, an association decided to sell products or services that are strictly voluntary purchases for members or nonmembers, it might be liable for such acts under the UCL. But applying the UCL to an election dispute would simply make no sense. An association, operating under its governing documents to maintain its premises and conduct required proceedings, possesses none of the relevant features the UCL was intended to address. Applying the UCL in this context would both misconstrue the intent of that statute and undermine the specific procedures set forth in the Davis-Stirling Act. An action under the UCL “is not an all-purpose substitute for a tort or contract action.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173 [96 Cal.Rptr.2d 518, 999 P.2d 706].) We therefore find the court properly sustained defendant’s demurrer to the second cause of action.
E. Attorney Fees[8]
Subdivision (b) states: “A member who prevails in a civil action to enforce his or her rights pursuant to this article shall be entitled to reasonable attorney’s fees and court costs, and the court may impose a civil penalty of up to five hundred dollars ($500) for each violation, except that each identical violation shall be subject to only one penalty if the violation affects each member of the association equally. A prevailing association shall not recover any costs, unless the court finds the action to be frivolous, unreasonable, or [1428] without foundation.” The trial court’s order stated, in relevant part: “Plaintiff knew when the action was filed that his claims under CC1363.09 were barred by the statute of limitations. Such a bar is grounds for finding an action to be frivolous. [Citations.]”
Defendant argues that the language ofsubdivision (b) does not specifically state that associations are not entitled to attorney fees because the language regarding prevailing associations mentions only “costs” and not fees. Defendant argues that when authorized by statute, reasonable attorney fees are allowable costs, and therefore, once the association has established the action is frivolous, the attorney fees provision becomes reciprocal.
(6) “In ascertaining the meaning of a statute, we look to the intent of the Legislature as expressed by the actual words of the statute. [Citation.] We examine the language first, as it is the language of the statute itself that has `successfully braved the legislative gauntlet.’ [Citation.]” (Wasatch Property Management v. Degrate (2005) 35 Cal.4th 1111, 1117 [29 Cal.Rptr.3d 262, 112 P.3d 647].) The “resort to legislative history is appropriate only where statutory language is ambiguous.”[9] (Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2005) 133 Cal.App.4th 26, 29 [34 Cal.Rptr.3d 520].)
(7) While we agree with the trial court’s conclusion that plaintiff’s decision to file this lawsuit was indeed frivolous,[10] we must also agree with plaintiff that the plain language of the statute does not support an award of attorney fees to defendant, as unfair as that may seem. Statutory[11] attorney fee awards must be specifically authorized by a statute. (Code Civ. Proc., [1429] § 1021.)
(8) While defendant argues that Code of Civil Procedure section 1033.5, ivision (a)(10) permits recovery of fees as an item of costs, such recovery is only permitted when authorized by contract or statute, which brings us right back around to the language of subdivision (b). Plaintiff points out that if the Legislature had intended the last sentence of subdivision (b) to include attorney fees as well as costs, it could and would have said so. Further, other provisions in the Davis-Stirling Act clearly indicate an entitlement to attorney fees where the Legislature deemed them appropriate. (See, e.g., Civ. Code, § 1365.2, subds. (e)(3), (f).) We reluctantly agree.
Defendant’s arguments on this point are simply unpersuasive. Defendant asserts the use of the word “any” in the phrase “a prevailing association shall not recover any costs” reflects the Legislature’s intent to preclude either costs or attorney fees unless the action is demonstrably frivolous. But “any” costs could refer to any of the cost items listed in Code of Civil Procedure section 1033.5, subdivision (a). Defendant also argues plaintiff’s interpretation “completely ignores the punitive nature of the provision, which is clearly intended to punish a member who puts an association in the position of having to expend money to defend a frivolously meritless lawsuit.” But no such punitive intent is evidenced by the language of the statute. Further, defendant cites no authority in support of its position.
(9) “`This court has no power to rewrite the statute so as to make it conform to a presumed intention which is not expressed.’ [Citations.]” (California Teachers Assn. v. Governing Bd. of Rialto Unified School Dist. (1997) 14 Cal.4th 627, 633 [59 Cal.Rptr.2d 671, 927 P.2d 1175].) We sympathize with defendant’s position on this issue and agree that the Legislature should amend the statute to create an entitlement to attorney fees for the association if an action is “frivolous, unreasonable, or without foundation.”
(10) But we must rule on the statute before us, and therefore we agree with plaintiff that subdivision (b) does not authorize the court to award a prevailing association attorney fees.
III. DISPOSITION
The trial court’s decision sustaining the demurrers is affirmed. The order awarding costs to defendant that include attorney fees is reversed, and the [1430] matter is remanded to the trial court to enter a new costs award. Each party shall bear its own costs on appeal.
Bedsworth, Acting P. J., and Aronson, J., concurred.
[*] Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is certified for publication with the exception of part II.C.
[1] According to the property manager, defendant had previously received a judgment against plaintiff for $177,904.69.
[2] Had the meeting been adjourned, it would have continued the recall election to a later date with a smaller quorum requirement.
[3] Plaintiff’s briefs purport to seek review of other issues as well, but these are the only questions properly before this court, as dictated by the relevant standard of review and substantive law.
[*] See footnote, ante, page 1419.
[7] Plaintiff cites a number of purported cases currently pending in the superior court, or decided by the appellate division, which have done so. Such cases have no binding or persuasive authority. The only published case involving an association and the UCL our research located was Turner v. Vista Pointe Ridge Homeowners Assn. (2009) 180 Cal.App.4th 676 [102 Cal.Rptr.3d 750], but that case did not address the substance of the plaintiffs’ UCL claim. (180 Cal.App.4th at p. 688.)
[8] Plaintiff requests that we direct “supplemental briefing” on this issue because the word limit on appellate briefs requires him to present his argument in “skeletal” format. The request is denied.
[9] We previously granted defendant’s unopposed request for judicial notice of the legislative history of Civil Code section 1363.09. If we were to consider the legislative history, we would find that it provides only limited support for defendant’s argument. The legislative history includes a number of committee reports and readings, but most of these documents merely state the bill would allow prevailing associations to recover “litigation costs” if the action is frivolous. Only one document, a partisan bill analysis, states that it would permit recovery of attorney fees by associations. To constitute cognizable legislative history, a document must shed light on the view of the Legislature as a whole. (Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc., supra, 133 Cal.App.4th at p. 30.)
[10] Plaintiff argues that the mere fact that he filed this lawsuit after the statute of limitations had run is not sufficient for a finding of frivolousness. We do not agree with plaintiff that tardiness was the only basis for the court’s finding.
[11] Defendant also argues it is entitled to attorney fees based on the CC&R’s (covenants, conditions and restrictions). It points to a provision which states: “In the event action is instituted to enforce any of the provisions contained in this Declaration, the party prevailing in such action shall be entitled to recover from the other party thereto as part of the judgment, reasonable attorney’s fees and costs of such suit.” The trial court rejected this argument, pointing out that no evidence had been presented that the quoted portion of the CC&R’s applied to this case. A copy of the CC&R’s was not provided to the trial court, therefore there was no way to evaluate whether it included any provisions relating to elections, “or that this action implicated any of [the CC&R’s] provisions.” For the same reasons, we reject this argument. While the CC&R’s might create an entitlement to attorney fees, defendant simply failed to make the necessary evidentiary showing in the trial court.
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Wittenburg v. Beachwalk Homeowners Association
[Elections; Equal Access] Where a board utilizes HOA media to advocate its point of view regarding an upcoming election, equal access to such media must also be provided to any member advocating a point of view on the issue.
Schiffer & Buus, Eric M. Schiffer and William L. Buus for Plaintiffs and Appellants.
Adams Kessler, Mary E. Gram, Aide C. Ontiveros and Adrian J. Adams for Defendant and Respondent.[657]
OPINION
IKOLA, J.-
Defendant Beachwalk Homeowners Association (association) held an election to amend its bylaws. Plaintiffs Paul Wittenburg and Raymond Dukellis filed suit to void the result of the election, claiming the association’s board of directors (the board) failed to comply with Civil Code section 1363.03, subdivisions (a)(1) and (a)(2). [1] Subdivision (a)(1) governs the use of “association media,” such as a newsletter or Web site, during a campaign. If an association permits any “candidate or member” to advocate a point of view using association media, the association must give members with opposing viewpoints equal access to the same media. Subdivision (a)(2) requires an association to permit free access to common areas for purposes reasonably related to an election. After a bench trial, the court entered judgment for the association, finding it violated neither subdivision.
Plaintiffs contend the court erred in three ways. First, they claim the court erroneously interpreted subdivision (a)(1) as containing an exception permitting the board of directors to advocate a point of view using association media without triggering the equal-access requirement. Second, plaintiffs claim the court erroneously found certain communications, from the board, were merely informational rather than advocacy under subdivision (a)(1). Third, plaintiffs claim there is no substantial evidence supporting the court’s finding that the [658] association did not violate subdivision (a)(2) during the campaign. We agree on all three counts and reverse the judgment.
FACTS
Plaintiffs are individual homeowners and members of the association. The association is governed by a seven-member board of directors who must be members of the association to serve and are elected by a vote of the members of the association.
The present conflict stems from paragraph nine of the association’s Covenants, Conditions and Restrictions (CC&R’s), which states, “no alterations, additions, or improvements, in connection with the common areas of the PRD [Planned Residential Development] shall be made at a cost of more than one thousand dollars ($1,000.00) without the approval of at least two-thirds (2/3) of the voting owners . . . .” In October of 2010 plaintiffs sued the association, claiming the association had removed one pool, and were threatening to remove two more, without obtaining the two-thirds vote required by paragraph nine of the CC&R’s. In November of 2010, the court granted a preliminary injunction preventing the removal of any more pools without obtaining the two-thirds vote required under paragraph nine. We refer to that lawsuit as the “pool litigation.”
Rather than obtain a two-thirds vote to remove the pools, the board instituted a series of elections to amend paragraph nine of the CC&R’s to increase the dollar threshold for requiring a vote, and to reduce the number of votes required to approve expenditures. In November of 2010 the board sent a ballot and cover letter to the homeowners announcing an election to be held in December 2010. The cover letter, which was drafted by board members who supported the amendment, described paragraph nine of the CC&Rs as “over broad, ambiguous, and open to interpretation on many levels.” The board warned, “As long as this subsection of the CC&R’s remains in force, there will be disputes about what constitutes an alteration or an improvement. Additionally, obtaining two-thirds voter approval of every project over $1000 will gridlock our operations and drive up our costs through constant ballots and legal expenses.” Accordingly, the board proposed the following revision to paragraph nine: “The Association shall maintain the common areas and Association-owned assets, except as otherwise provided in the CC&Rs. The spending for operational, maintenance, and repair expenses shall be limited by Section 1366 . . . . Moreover, the Board of Directors may not make capital improvements to the common areas in any one fiscal year in excess of two and one-half percent (2.5%) of the Association’s budgeted gross expenses for [659] that year without the approval of a majority of the membership.” [2] The letter praised this alternative as more flexible and reasonable, while still “a workable method of fiscal restraint.” The letter concluded by warning, “If we don’t take action now to resolve the situation with the CC&Rs, the Association is destined to become further mired in conflict and expensive litigation.” As one board member at trial commented, the letter “is making a strong case” in favor of the amendment and agreed it was “encouraging them to vote yes on Amendment 8.”
Accompanying the letter was a one-page attachment containing a section entitled “Case for amending the CC&Rs,” and another section entitled “Case against amending the CC&Rs.” The document was written by board members who supported the amendment. The board did not ask any opposing members for written input for the “Case against,” but did listen to their arguments at homeowner forums and attempted to incorporate those arguments. The board specifically decided not to include any opposition material.
The board’s proposal generated significant interest in the community. Fliers circulated throughout the community on almost a weekly basis.
Shortly after the board sent out the election materials, a homeowner requested use of the “rental side” of the clubhouse to put on a “town hall meeting” to support other candidates for the board of directors who had a different view than the view expressed by the current board regarding the amendment. The association’s clubhouse is divided between one side available for free and another available for rental. The rentals are handled through the community manager and generally rental requests do not come before the board. The homeowner tendered a check to the community manager for $200 representing the cleaning deposit, believing he did not have to pay the usual $90 rental fee under subdivision (a)(2). Two days later, however, the community manager called the homeowner and stated the board had rejected the request to use the clubhouse for free. Accordingly, the homeowner paid the additional $90 fee. At trial one of the board members in support of the amendment testified the homeowner request never came before the board because it went through the community manager, but also acknowledged the board should have given the homeowner a refund.
In order to pass outright under the CC&R’s, the amendment required a yes vote from 75 percent of the members of the association. The board’s aim, however, was more modest: a yes vote from 50 percent of the members, which would allow the board to file a petition to have the CC&R’s amended [660] under section 1356, subdivision (c)(4). To achieve 50 percent, the board needed 227 yes votes. The December 2010 election fell short of that, garnering 188 yes votes, which amounted to 64 percent of the votes that were cast, but not 50 percent of the total number of association members.
The board scheduled another election for April of 2011. In February of 2011 the board sent ballots and voting materials to all of the members. Included with those materials was a two-page letter regarding the amendment that was nearly identical to the letter sent in connection with the prior election, as well as the same summary of the cases for and against the amendment. The proposed amendment underwent one change: for expenses that would require a vote under the amendment, instead of requiring a 50 percent vote as before, the revised amendment would require a 55 percent vote in favor of the expenditure.
The association had a newsletter that went to all members on a monthly basis. The board exclusively drafted all of the content of the newsletter. In the February 2011 issue of the newsletter, the board included a section entitled “Update on the Proposed 8th Amendment to the Beachwalk CCRs,” which listed a number of arguments in support of the amendment. For example, it asked, “Why is this so important and why does the proposed amendment benefit the community?” It answered by claiming paragraph nine was ambiguous, the proposed alternative was more modern and adaptable, and the amendment would help resolve the pool litigation. It also asked, “What will happen if the 8th amendment does not receive 227 yes votes?” It then listed several consequences, including the lawsuit regarding the pools would “drag on, generating huge legal bills,” any homeowner “with the will and financial resources to sue the” association would do so on the basis of paragraph nine, the association’s insurance rates would go up, otherwise willing homeowners would stop volunteering their time to the association, and operating costs would increase. As a result, the board promised to continue holding elections until the measure passed: “Therefore, we will be asking homeowners to vote on this issue again on the March ballot. And if we cannot get 227 yes votes in March, there will be another ballot on the same issue shortly thereafter.” The article concluded with an exhortation to the members to vote yes on the amendment: “Vote YES on the proposed 8th amendment to our CCRs so we can put our money to use on physically improving Beachwalk.” One of the board members who was in favor of the amendment testified this article was encouraging the homeowners to vote yes. Nonboard members were not invited to provide opposing viewpoints in the newsletter.
Shortly thereafter, a homeowner opposed to the amendment asked to write a response to the board’s newsletter article to be published in the March 2011 issue of the newsletter. The board refused the request because only board members were permitted to publish articles in the newsletter. [661]
At around the same time another homeowner opposed to the amendment requested use of a common area called the “greenbelt” for purposes of a political rally. The request was denied. The community manager explained by e-mail he was unable to obtain unanimous consent from the board, which was required for an action without meeting (which was necessary because no board meeting was scheduled between when the application was filed and the requested date for the rally). The homeowner replied with an angry e-mail decrying a violation of his rights under section 1363.03. The manager’s only response was to say he would pass the homeowner’s concerns on to the board, and he invited the homeowner to resubmit his request at the next regularly scheduled board meeting where a simple majority could approve his request, which was eight days after the date of the proposed political rally. The board members were concerned the homeowner had requested the greenbelt for the entire day, had requested the use of clubhouse tables and chairs, and had not specified the number of people that would attend. But there was no evidence those concerns were expressed to the homeowner, nor was the homeowner told he could resubmit the request with additional details or modifications and be approved prior to the date he had requested.
The association also had a glass-enclosed community bulletin board, which was controlled by the board. The newsletter was posted on the bulletin board, but nonboard members were not permitted to post materials to the bulletin board.
The board also maintained an association Web site. In March of 2011, the board added an update to the pool litigation on the Web site. The update concluded with another exhortation to vote yes on the amendment: “Members are encouraged to vote yes for the 8th Amendment so that the litigation can be resolved expeditiously.” That update was present on the Web site at least through September of 2011. The board would not have allowed nonboard members to post material on the association Web site, nor were members invited to.
Subsequently, in the April 2011 issue of the newsletter, the board included a similar insert describing the ongoing pool litigation and encouraging members to vote in favor of the amendment: “Members are encouraged to vote yes for the 8th Amendment so that the litigation can be resolved expeditiously.”
The April 2011 election likewise failed to receive 227 yes votes, falling short at 219 yes votes.
Shortly thereafter the board scheduled another election regarding the amendment for August 2011. In July the board sent out ballot materials [662] together with a similar cover letter encouraging members to vote yes on the amendment. This time the letter added, “This issue has already gone before the homeowners on two occasions (December 2010 and April 2011). In both cases, the majority of those members who cast ballots voted to amend the CC&Rs; however, neither ballot received the necessary 227 yes votes. Although the [association] is filing a petition with the courts anyway, it is entirely possible the petition will not succeed without the 227 yes votes. Therefore, we must continue to conduct ballots (at a cost of approximately $5000 per ballot) until we can obtain 227 yes votes, or the courts accept the argument that the Beachwalk community suffers from irredeemable voter apathy.”
No opposing homeowners asked to publish articles in the newsletter after the August 2011 election was announced, though two board members in favor of the amendment testified they would have refused such requests. As one of the board members stated, “I believe the policy is one of evenhandedness, no articles for the pro side and no articles for the con side.”
The deadline for returning the ballots was August 15, 2011. On that day, however, the board had not received the ballots of 75 percent of the membership, which was the minimum required to pass the amendment under the CC&R’s, so the board extended voting one week. The amendment ultimately received 258 votes in favor, and 105 against.
Having crossed the 227 vote threshold, the association petitioned the court to amend the CC&R’s. Afterwards, plaintiffs filed the underlying complaint to invalidate the results of the August 2011 election.
Plaintiffs alleged the association violated subdivision (a)(1) by permitting board members to advocate their point of view using association media (thereby triggering the equal-access clause), and then refusing to permit opposing members to utilize the same media to express their point of view. Plaintiffs also claimed they were denied free access to common areas as required by subdivision (a)(2).
After a three day bench trial, the court issued its judgment and statement of decision finding in favor of the association.
First, the court held the association had adopted election rules in 2007 in compliance with section 1363.03. This was based on uncontested evidence showing the association adopted rules in 2007 essentially mirroring the language of section 1363.03. Plaintiffs do not challenge that finding on appeal.
Second, the court held the equal-access requirement of subdivision (a)(1) inapplicable: “The plain language of the statute makes a clear distinction [663] between ‘candidates or members’ advocating a point of view and the ‘association.’ The statute provides by implication that the association, a non-profit corporation which acts through its board [citations], can endorse a candidate or point of view, but mandates that if a candidate or member is given access to the association’s media then all candidates and members advocating a point of view ‘including those not endorsed by the board’ must be given equal access. The weight of the evidence presented establishes that the board authorized and issued the newsletter information in the ‘Breeze’, the pre-election Website information, and the cover letter and other attachments to the ballot materials for the August 22, 2011 election. The court finds that Association, acting through its legally constituted board, used its own media to provide information related to the election and this did not trigger the provisions of [subdivision](a)(1).”[3]
Third, the court held there was no violation of subdivision (a)(2): “There was no persuasive evidence produced to prove that there was any violation of [subdivision ](a)(2) regarding free access to common areas. The weight of the evidence presented establishes that Association allowed access to common area meeting space in Clubhouse #1, in the greenbelt area, and in other open common area space during the campaign for the August 2011 election, at no cost, to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the August 22, 2011 election.” Plaintiffs timely appealed.
DISCUSSION
[1] 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 . . . . [Citation.] Common interest developments are required to be managed by a homeowners association [citation], defined as ‘a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development’ [citation], which homeowners are generally mandated to join [citation].” (Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 81, fn. omitted; see also That v. Alders Maintenance Assn. (2012) 206 Cal.App.4th 1419, 1425-1426.)
Section 1363.03 governs certain election procedures. The two provisions relevant to this appeal are in subdivision (a)(1) and (2). Those provisions [664] provide, “(a) An association shall adopt rules . . . that do all of the following: [¶] (1) Ensure that if any candidate or member advocating a point of view is provided access to association media, newsletters, or Internet Web sites during a campaign, for purposes that are reasonably related to that election, equal access shall be provided to all candidates and members advocating a point of view, including those not endorsed by the board, for purposes that are reasonably related to the election. . . . [¶] (2) Ensure access to the common area meeting space, if any exists, during a campaign, at no cost, to all candidates, including those who are not incumbents, and to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the election.”
[2] Section 1363.09 subdivision (a) creates a right of action for a violation of subdivision (a)(1) and (2). If a court finds those provisions were violated, it may void the election results or impose civil penalties.
The Court Erred in its Interpretation of Subdivision (a)(1)
Plaintiffs first contend the court erred in interpreting subdivision (a)(1). In particular, plaintiffs contend the court’s board-member exception to the equal-access provision violates both the text and policy of subdivision (a)(1). We review the court’s statutory interpretation de novo (Corrales v. Corrales(2011) 198 Cal.App.4th 221, 226), and we agree the court erred.
[3] The court concluded the board is immune from the equal-access provision. The court reasoned that subdivision (a)(1) does not apply to an association’s use of its own media to endorse a candidate or viewpoint. But the text of subdivision (a)(1) does not support the court’s interpretation. The equal-access provision of subdivision (a)(1) is triggered any time a “member” advocates a point of view using association media. It is undisputed the board members in this case were — indeed had to be — members of the association. Thus, to the extent board members advocated their point of view in association media, whether expressing a personal viewpoint, or the collective viewpoint shared by a majority of the board members, the text of the equal-access provision straightforwardly applies.
The statutory text further undermines the court’s interpretation by stating equal access must be granted to members advocating a point of view “including those not endorsed by the board.” (subd. (a)(1).) This provision demonstrates the Legislature’s particular concern that viewpoints opposing the board be heard. The court’s interpretation turns that concern on its head and ensures the board can utilize association media to the exclusion of viewpoints “not endorsed by the board.” As plaintiffs state in their brief, “If [665] the Court created [a board-member exception], it would allow those in power the advantage of using Association media to advocate a point of view to the exclusion of any opposing view. Such a construction would only further empower those individuals already in power, and would weaken those individuals not in power. Not only would such a construction be fundamentally unfair, but it would facilitate rather than cure the evils intended to be remedied by the statute.” We agree and hold board members are treated as any other member for purposes of subdivision (a)(1). [4]
The association argues, “Common sense dictates that a part of effectively fulfilling the duties owed by the Association includes providing recommendations to members about managing the property, protecting the Association’s financial well-being, and explaining the basis of Board recommendations.” We have no doubt this is so, and nothing about our holding precludes a board from fulfilling that duty. We hold only, that under subdivision (a)(1), while in the midst of an election, the board must either give equal access to opposing viewpoints, or forego the use of association media to advocate its viewpoint.
The Board Engaged in Advocacy
The court further concluded the board’s various communications were merely informational, and not advocacy: “The weight of the evidence presented establishes that the board authorized and issued the newsletter information in the ‘Breeze’, the pre-election Website information, and the cover letter and other attachments to the ballot materials for the August 22, 2011 election. The court finds that [the] Association, acting through its legally constituted board, used its own media to provide information related to the election and this did not trigger the provisions of” subdivision (a)(1). (Italics added.) The court erred.
[4] We are not aware of any cases, nor have the parties cited any, interpreting the term “advocating” as used in subdivision (a)(1). “We begin with the language of the statute. If the text is sufficiently clear to offer conclusive evidence of the statute’s meaning, we need look no further. [Citation.] If it is susceptible of multiple interpretations, however, we will divine the statute’s meaning by turning to a variety of extrinsic sources, including the legislative history [citation], the nature of the overall statutory [666] scheme [citation], and consideration of the sorts of problems the Legislature was attempting to solve when it enacted the statute [citation].” (Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 770.)
[5] Black’s Law Dictionary defines “advocacy” as “[t]he act of pleading for or actively supporting a cause or proposal.” (Black’s Law Dict. (7th ed. 1999) p. 55, col. 2.) And the verb “advocate” is commonly defined to mean “to plead in favor of.” (Merriam-Webster’s Collegiate Dict. (10th ed. 2001) p. 18, col. 1.)
[6] This plain English definition, which we adopt, is consistent with the overall nature and purposes of section 1363.03. Subdivision (a)(1) was part of a bill that sought to “provide substantial new voting protections” to members of homeowner associations designed to “guarantee that basic democratic principles are in place during elections,” which had previously been “contaminated by manipulation, oppression and intimidation of members, as well as outright fraud.” (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 61 (2005-2006 Reg. Sess.) as amended Apr. 12, 2005.) It is thus remedial in nature. “A statute which ‘is remedial in nature and in the public interest is to be liberally construed to the end of fostering its objectives . . . . ‘The rule of law in the construction of remedial statutes requires great liberality, and wherever the meaning is doubtful, it must be so construed as to extend the remedy.”” (People ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263, 269.) The definition above is sufficiently broad to ensure one side of a debate cannot monopolize the use of association media. [5]
With the proper definition of advocacy in mind, we reject the court’s conclusion that the board’s communications were purely informational and thus not advocacy. Both the association Web site and newsletter contained the statement, “Members are encouraged to vote yes for the 8th Amendment so [667] that the litigation can be resolved expeditiously.” This plainly amounts to advocacy within the meaning of subdivision (a)(1). The cover letter that was sent with each of the election ballot materials, described in detail in the facts section above, likewise advocated for the amendment’s passage. One board member at trial described those letters as “making a strong case” in favor of the amendment and “encouraging them to vote yes on Amendment 8.” Our review of those materials confirms that description.
[7] Having engaged in advocacy, under subdivision (a)(1) the association was bound to permit other members equal access to association media. The undisputed evidence shows the association failed in its duty. On at least one occasion the board outright refused to publish an article in the newsletter opposing an advocacy article the board had published. And though the association nominally enacted rules parroting the language of section 1363.03, it was undisputed at trial that the board’s policy was to not permit homeowners to publish advocacy pieces in the newsletter or the association website, nor to permit homeowners access to the association bulletin board. Accordingly, the association violated subdivision (a)(1).
[8] For the guidance of the trial court, we note, contrary to the apparent assumption of the parties and the court during trial, a violation of subdivision (a)(1) does not automatically void the election results. Section 1363.09, subdivision (a), provides, “Upon a finding that the election procedures of this article . . . were not followed, a court may void any results of the election.” (Italics added.) [9] “Ordinarily, the word ‘may’ connotes a discretionary or permissive act; the word ‘shall’ connotes a mandatory or directory duty.” (Woodbury v. Brown-Dempsey (2003) 108 Cal.App.4th 421, 433.) The legislative history confirms that usage here. An earlier version of the Assembly bill that ultimately added subdivison (a)(1) read, “Upon a finding that the election procedures of this section . . . were not followed, a court shall void the results of the election.” (Assem. Bill No. 1098 (2005-2006 Reg. Sess.) as amended Apr. 11, 2005 § 1, italics omitted.) We conclude the change from “shall” to “may” was intended to grant the court discretion.
The Association Violated Subdivision (a)(2)
[10] Subdivision (a)(2) requires the association to give members free access to common areas “during a campaign” for purposes reasonably related to the election. The court held “[t]here was no persuasive evidence produced to prove that there was any violation of [subdivision ](a)(2) regarding free access to common areas” and that the association “allowed access to common area[s] for the August 2011 election, at no cost, to all members advocating a point of view, including those not endorsed by the board, for purposes [668] reasonably related to the August 22, 2011 election.” Under the unique circumstances of this case, the court erred by too narrowly defining the “campaign” as related solely to the association activities immediately preceding the August 22, 2011 election.
Plaintiffs presented evidence of two instances in which the association allegedly violated this subdivision.
In the first alleged violation, a homeowner attempted to reserve the rental side of the clubhouse at no cost to hold a town hall meeting in connection with the December 2010 election, but the community manager told him the board had rejected the request to use the clubhouse for free. Accordingly, the homeowner paid a $90 fee. At trial one board member testified the homeowner’s request never came before the board because it went through the manager, but also acknowledged she eventually became aware of it and admitted the board should have given the homeowner a refund. The only disputed aspect of this evidence is whether the board explicitly rejected the homeowner’s request or whether the community manager did so independently.
In our view, that dispute makes no difference. The community manager was hired by the association to handle clubhouse reservations on behalf of the association. Regardless of whether this request came before the board, the fact remains that the homeowner requested the free use of a common area for purposes reasonably related to the election, but was denied and told to pay a fee instead. Assuming this event is properly considered a part of the “campaign,” the court’s comment that there was no “persuasive” evidence is unavailing in this context because the evidence is, in relevant part, undisputed.
The second alleged violation occurred when, before the April 2011 election, a homeowner requested the use of a common area known as the “greenbelt” for purposes of a political rally. The request was denied in writing without explanation, other than to invite him to resubmit the request at the next regularly scheduled board meeting, which was eight days after the requested date of the political rally. The board members had concerns that the homeowner had requested the greenbelt for the entire day, rather than a specific time period, and had not specified the number of people that would attend. There was no substantial evidence, however, that such concerns had been expressed to the homeowner, nor was the homeowner told he could resubmit the request with additional details or modifications and be approved prior to the date he had requested. His request was simply denied. Again, assuming this event occurred as part of the “campaign,” the association’s legal obligation under subdivision (a)(2) was to “[e]nsure access to the [669] common area meeting space . . . to all members advocating a point of view . . . for purposes reasonably related to the election.” The board did not fulfill its obligation.
The association does not contest that these events occurred. Instead, it argues they are irrelevant because they occurred in connection with the December 2010 and April 2011 elections, not the August 2011 election, which is the election plaintiffs challenge. The premise underlying the association’s argument is that a violation is only relevant to a single election, after which the association is absolved of any wrongdoing for purposes of future elections.
[11] Subdivision (a)(2) does not explicitly address whether a particular violation may apply to multiple elections in circumstances such as those present here. It simply states access must be granted to common areas “during a campaign . . . for purposes reasonably related to the election.” The issue, therefore, is whether the “campaign” in this case encompassed all three elections or restarted after each election.
As a practical matter, most campaigns will correspond to a single election. In the unique circumstances of this case, however, we hold the campaign to pass the amendment did encompass the December 2010, April 2011, and August 2011 elections. This case is unique because the board threatened to, and did, hold multiple elections in short succession until the amendment passed. Shortly after the December 2010 election failed, the board sent a message to the homeowners in the newsletter articulating arguments in favor of the amendment and stating, “Therefore, we will be asking homeowners to vote on this issue again on the March ballot. And if we cannot get 227 yes votes in March, there will be another ballot on the same issue shortly thereafter.” They did not receive the required votes in the next election, so, true to their word, the board held another election and issued a similar warning: “This issue has already gone before the homeowners on two occasions (December 2010 and April 2011). . . . Although the [association] is filing a petition with the courts anyway, it is entirely possible the petition will not succeed without the 227 yes votes. Therefore, we must continue to conduct ballots (at a cost of approximately $5000 per ballot) until we can obtain 227 yes votes, or the courts accept the argument that the Beachwalk community suffers from irredeemable voter apathy.” (Italics added.) The board itself, therefore, tied the two prior elections to the August 2011 election and threatened to continue holding elections until the Amendment garnered sufficient votes. Under these circumstances, we hold the “campaign” encompassed all three elections. [670]
As noted above, however, we do not hold the court must void the August 2011 results, only that the violations of subdivision (a)(2) described above are relevant and should be considered in deciding whether to void the results of the August 2011 election.
DISPOSITION
The judgment is reversed. Plaintiffs shall recover their costs incurred on appeal.
O’Leary, P.J., and Rylaarsdam, J., concurred.
Respondent’s petition for review by the Supreme Court was denied September 11, 2013, S212545.
[1]. All statutory references are to the Civil Code. References to “subdivision (a)(1)” and “subdivision (a)(2)” are to section 1363.03.
[2]. The parties refer to this as the “8th Amendment” because it would be the eighth amendment to the CC&R’s. For clarity, we simply refer to it as the “amendment.”
[3]. The court also stated, “There was no credible evidence that any member of the Association changed his/her vote because of any information contained in any of the Association’s media or ballot materials.” Both parties agree, however, that this is not a relevant consideration. Thus we do not address it.
[4]. Plaintiffs filed a motion for judicial notice of the Senate bill analysis of Senate Bill 61, which was the bill that introduced subdivision (a)(1) and (2). (Sen. Bill No. 61 (2005-2006 Reg. Sess.).) A motion for judicial notice of published legislative history, such as the Senate Analysis here, is unnecessary. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 45-46, fn. 9.) “Citation to the material is sufficient. [Citation.] We therefore consider the request for judicial notice as a citation to those materials that are published.” (Id. at p. 46, fn. 9.)
[5]. The parties debate whether we should interpret “advocating” as synonymous with “campaigning” as that term is used in the line of cases holding a public entity may not use public funds for “campaigning.” (See, e.g., Stanson v. Mott (1976) 17 Cal.3d 206; Vargas v. City of Salinas (2009) 46 Cal.4th 1.) The Stanson line of cases make a distinction between “campaigning” and “informational” activity. The analogous issue in homeowner association election, i.e. the use of association funds, is governed by section 1363.04, which prohibits the use of association funds “for campaign purposes in connection with any association board election [or] for campaign purposes in connection with any other association election except to the extent necessary to comply with duties of the association imposed by law.” (Id., subd. (a).) But this case is not about the prohibited use of association funds. It is only about the equal access rules found in subdivision (a)(1) and (2) – rules triggered by “advocacy,” not “campaigning.” Thus there is no need to distinguish (or not) between “campaigning” and “informational” activity. It is enough for our purposes to interpret the word “advocacy” and determine under that definition whether the board engaged in “advocacy.”
Related Links
“Equal Access to HOA Media Outlets During Election Campaigns” – Blog post from HOA Lawyer Blog, published 07/29/13
O’Connor v. Village Green Owners Association
[Discrimination; CC&R Age Restrictions] A provision in a HOA’s CC&Rs prohibiting residency by persons under the age of 18 is discriminatory, invalid and unenforceable.
OPINION:
[792] KAUS, J.
These consolidated appeals involve the validity and enforceability of an age restriction in the covenants, conditions and restrictions (CC & Rs) of a condominium development which limits residency to persons over the age of 18. In Marina Point, Ltd. v. Wolfson (1982) 30 Cal.3d 721, we recently condemned such an age restriction in an apartment complex as violative of the Unruh Civil Rights Act (Civ. Code, § 51). We conclude that the age restriction in the CC&Rs of a condominium development also violates the act.
The Village Green is a housing complex of 629 units in the Baldwin Hills area of Los Angeles. It was built in 1942 and was operated as an apartment complex until 1973 when it was converted to a condominium development. As [793] part of the condominium conversion the developer drafted and recorded a declaration of CC&Rs which run with the property and which contain a prohibition against residency by anyone under the age of 18.[1] The CC&Rs also establish the Village Green Owners Association (association) and authorize it to enforce the regulations set forth therein. The association is a nonprofit organization whose membership consists of all owners of units at Village Green.
John and Denise O’Connor bought a two-bedroom unit in Village Green in 1975. On July 4, 1979, their son Gavin was born. Shortly thereafter, the association gave them written notice that the presence of their son Gavin in the unit constituted a violation of the CC&Rs and directed them to discontinue having Gavin live there.
After making unsuccessful attempts to find other suitable housing, the O’Connors filed a complaint against the association seeking to have the age restriction declared invalid and to enjoin its enforcement. The first amended complaint alleged, inter alia, that the age restriction violated the Unruh Civil Rights Act (Civ. Code, § 51).[2] The association filed a general demurrer which the trial court sustained without leave to amend. The action was dismissed and the O’Connors appealed.
After the O’Connors’ notice of appeal was filed, the association filed an action to enjoin the O’Connors from residing in the condominium with their son. The trial court granted a preliminary injunction but stayed its enforcement for 90 days to allow the O’Connors to find other housing. The O’Connors filed a notice of appeal. (1) Since the preliminary injunction was mandatory, the filing of the notice of appeal stayed its effect. (See 6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 177, p. 4166 and cases cited therein.) This opinion disposes of both appeals.
In Marina Point, Ltd. v. Wolfson, supra, 30 Cal.3d 721, we considered the question of whether the Unruh Civil Rights Act (the act) prohibited an apartment owner’s discrimination against children. We reviewed the history of the act — Civil Code section 51 — and noted that it had emanated from earlier “public accommodation” legislation and had extended the reach of such statutes from common carriers and places of accommodation to cover “all [794] business establishments of every kind whatsoever.”[3] Relying on our interpretation of the act in In re Cox (1970) 3 Cal.3d 205, we held that the act barred all types of arbitrary discrimination. The act’s reference to particular bases of discrimination — “sex, color, race, religion, ancestry or national origin” — was illustrative rather than restrictive.
We noted, however, that although the act prohibits a business establishment from engaging in any form of arbitrary discrimination, it does not absolutely prohibit such an establishment from excluding a customer in all circumstances. “`Clearly, an entrepreneur need not tolerate customers who damage property, injure others or otherwise disrupt his business. A business establishment may, of course, promulgate reasonable deportment regulations that are rationally related to the services performed and the facilities provided.'” (Marina Point, Ltd. v. Wolfson, supra, 30 Cal.3d at p. 737; quoting from In re Cox, supra, 3 Cal.3d at p. 217.) We rejected, however, the landlord’s contention in Marina Point that the exclusion of children was such a reasonable restriction. It was not a sufficient justification to state that children are “rowdier, noisier, more mischievous and more boisterous than adults.” (30 Cal.3d at p. 737.) Exclusion of persons based on a generalization about the class to which they belong is not permissible. (Id., at pp. 736-740.) Nor could exclusion of children from an ordinary apartment complex be justified on the basis that the presence of children does not accord with the nature of the business enterprise and of the facilities provided — as might be said of bars, adult book stores and senior citizens homes. (Id., at p. 741.)
In sum, we held in Marina Point that the landlord’s blanket exclusion of children from residency was prohibited by the act. It could not be justified by any claim about generalized characteristics of children or the nature of the apartment complex. Indeed, the claim that the facilities were incompatible with the presence of children was belied by the fact that children formerly had been permitted to reside in the complex. (30 Cal.3d at p. 744, fn. 13.)
(2a) In Marina Point there was no question that the apartment complex was a “business establishment” within the meaning of the act. The determinative question in that case was whether the act encompassed discrimination against children. Since that question was answered in Marina Point, the only question to be decided in the present case is whether the discriminatory policy against children is being invoked by a “business establishment” within the meaning of the act.
[795] The act protects all persons from arbitrary discrimination in “accommodations, advantages, facilities, privileges or services in all business establishments of every kind whatsoever.” (Civ. Code, § 51.) We discussed the scope of that language in Burks v.Poppy Construction Co. (1962) 57 Cal.2d 463, 468-469: “The Legislature used the words `all’ and `of every kind whatsoever’ in referring to business establishments covered by the Unruh Act (Civ. Code, § 51), and the inclusion of these words without any exception and without specification of particular kinds of enterprises, leaves no doubt that the term `business establishments’ was used in the broadest sense reasonably possible. The word `business’ embraces everything about which one can be employed, and it is often synonymous with `calling, occupation, or trade, engaged in for the purpose of making a livelihood or gain.’ [Citations.] The word `establishment,’ as broadly defined, includes not only a fixed location, such as the `place where one is permanently fixed for residence or business,’ but also a permanent `commercial force or organization’ or `a permanent settled position (as in life or business).’ [Citation.]”
(3), (See fn. 4.) (2b) In Burks, we found it clear that a real estate developer who built and sold tract houses operated a “business establishment” within the meaning of the act.[4](See also Lee v. O’Hara (1962) 57 Cal.2d 476 [act applies to real estate broker].) We noted that the original version of the bill presented to the Legislature specifically referred to the right “to purchase real property” and to other rights, such as the obtaining of “professional” services, in addition to “business establishments.” The final version, however, eliminated all specific references and added to the term “business establishments” the words “of every kind whatsoever.” We concluded in Burks that the deletion of the specific reference to the purchase of real property could be explained on the ground that the Legislature deemed specific references no longer necessary in light of the broad language of the act as finally passed.
The O’Connors and amici urge us to apply the same reasoning to hold that the Village Green Owners Association is also a business establishment within the meaning of that term in the act. They note that among the specific references in the original version of the bill were “private or public groups, organizations, associations, business establishments, schools, and public facilities.”[5] The broadened scope of business establishments in the final version of the bill, in our view, is indicative of an intent by the Legislature to include therein all formerly specified private and public groups or organizations that may reasonably [796] be found to constitute “business establishments of every type whatsoever.” Although our cases so far have all dealt with profit-making entities, we see no reason to insist that profit-seeking be a sine qua non for coverage under the act. Nothing in the language or history of its enactment calls for excluding an organization from its scope simply because it is nonprofit. (See Horowitz, The 1959 California Equal Rights in “Business Establishments” Statute — A Problem in Statutory Application (1960) 33 So.Cal.L.Rev. 260, 290-291.) Indeed, hospitals are often nonprofit organizations, and they are clearly business establishments to the extent that they employ a vast array of persons, care for an extensive physical plant and charge substantial fees to those who use the facilities. The Village Green Owners Association has sufficient businesslike attributes to fall within the scope of the act’s reference to “business establishments of every kind whatsoever.” Contrary to the association’s attempt to characterize itself as but an organization that “mows lawns” for owners, the association in reality has a far broader and more businesslike purpose. The association, through a board of directors, is charged with employing a professional property management firm, with obtaining insurance for the benefit of all owners and with maintaining and repairing all common areas and facilities of the 629-unit project. It is also charged with establishing and collecting assessments from all owners to pay for its undertakings and with adopting and enforcing rules and regulations for the common good. In brief, the association performs all the customary business functions which in the traditional landlord-tenant relationship rest on the landlord’s shoulders. A theme running throughout the description of the association’s powers and duties is that its overall function is to protect and enhance the project’s economic value. Consistent with the Legislature’s intent to use the term “business establishments” in the broadest sense reasonably possible (Burks v. Poppy Construction Co., supra, 57 Cal.2d at p. 468), we conclude that the Village Green Owners Association is a business establishment within the meaning of the act.
Anticipating that it might be found to be a business establishment for purposes of applicability of the act, the association attempts to distinguish its discriminatory policy from that in Marina Point on the ground that it has fewer effective remedies for abating a nuisance caused by a child. Although a landlord does have the summary remedy of unlawful detainer proceedings for dealing with a disruptive child, we are not persuaded that the association is so powerless to remedy any problems arising from particular conduct that it must [797] be permitted to maintain a discriminatory policy based on generalized traits. The association could adopt deportment regulations and rely on its normal procedures to enforce them. No reason appears why that would be any less effective than other use and conduct regulations the association may have. Moreover, we note that the restrictive covenant against children is already invalid under Marina Point as to units held as income property and rented out by their owners. (See Swann v. Burkett (1962) 209 Cal. App.2d 685, 694-695.) The association therefore is already faced with the burden of planning for the presence of children.
The judgments in both actions are reversed.
Bird, C.J., Reynoso, J., and Stern, J.,[6] concurred.
BROUSSARD, J.
I fully concur in the majority opinion. I would also rest our holding, however, on Civil Code section 53 as well as on Civil Code section 51.[7]
Section 51 prohibits discrimination by a “business establishment” on grounds of “sex, race, color, religion, ancestry, or national origin….” Section 53 deals more specifically with the problem of discriminatory restrictions on the use of real property. It provides in part: “(a) Every provision in a written instrument relating to real property which purports to forbid or restrict the conveyance, encumbrance, leasing, or mortgaging of such real property to any person of a specified sex, race, color, religion, ancestry, or national origin, is void and every restriction or prohibition as to the use or occupation of real property because of the user’s or occupier’s sex, race, color, religion, ancestry, or national origin is void. [¶] (b) Every restriction or prohibition, whether by way of covenant, condition upon use or occupation, or upon transfer of title to real property, which restriction or prohibition directly or indirectly limits the acquisition, use or occupation of such property because of the acquirer’s, user’s, or occupier’s sex, race, color, religion, ancestry, or national origin is void. [¶] …” Thus, section 53 nullifies the arbitrarily discriminatory restriction itself. Since the restriction is void, no party to it may enforce it, regardless of whether that party constitutes a “business establishment” under section 51.
Section 53 includes the same critical phrase as section 51: “sex, race, color, religion, ancestry, or national origin.” In In re Cox (1970) 3 Cal.3d 205, 216, we interpreted this phrase as used in section 51 as being “illustrative rather than restrictive…. Although the legislation [798] has been invoked primarily by persons alleging discrimination on racial grounds, its language and its history compel the conclusion that the Legislature intended to prohibit all arbitrary discrimination by business establishments.” Thus, in Cox, we determined that section 51 necessarily applies to young men wearing long hair and unconventional dress, despite the lack of specification of “hippie” in the critical phrase.
In Marina Point, Ltd. v. Wolfson (1982) 30 Cal.3d 721, we reaffirmed our view in Cox that the critical phrase was merely illustrative and not all-inclusive. In holding that section 51 applied to prohibit arbitrary discrimination against families with children in renting housing, we noted that even the Legislature has recognized that the critical phrase in section 51 is merely illustrative. “In 1974, the Legislature amended section 51, reenacting the prior provisions of the statute and adding `sex’ to the specifically enumerated bases of discrimination listed in the Unruh Act. In sending the bill to the Governor for his signature, the Chairman of the Select Committee on Housing and Urban Affairs explained: `The purpose of the bill is to bring it to the attention of the legal profession that the Unruh Act provides a remedy for arbitrary discrimination against women (or men) in public accommodations which are business enterprises. This bill does not bring such discrimination under the Unruh Act because that Act has been interpreted as making all arbitrary discrimination illegal, on whatever basis. The listing of possible bases of discrimination has no legal effect, but is merely illustrative.’ (Original italics.) The chairman attached to his letter a copy of a legislative counsel opinion, discussing our decision in Cox and confirming the chairman’s view of the legislation. [¶] … Instead [of altering preexisting language to expressly reject our Cox interpretation], the Legislature reenacted the previously construed language verbatim, simply adding an explicit reference to sex discrimination to highlight the statute’s application in that area. Under the numerous authorities cited above, this action represents a legislative endorsement of Cox’s interpretation of section 51.” (Wolfson, supra, at pp. 734-735; fn. omitted.)
Section 51, originally enacted in 1905 (Stats. 1905, ch. 413, § 1, p. 553) had been substantially amended to resemble more closely its current form in 1959 (Stats. 1959, ch. 1866, § 1, p. 4424). Two years later, section 53 was enacted (Stats. 1961, ch. 1877, § 1, pp. 3976-3977) and placed in close proximity to section 51 in part 2 of the Civil Code, entitled “Personal Rights.” Section 53 contained the same critical phrase embodied in section 51 at that time. The critical phrase in section 53 has been amended only once since its enactment, and in the same 1974 legislation which amended the same clause in section 51. (Stats. 1974, ch. 1193, § 1, p. 2568.)
These legislative actions clearly indicate that the Legislature has intended the critical phrase of section 53 to receive the same illustrative reading as is given [799] to the identical phrase of section 51. Such an illustrative reading must similarly prohibit the arbitrary discrimination against families with children found to violate section 51 in Wolfson.[8]
An illustrative reading of section 53 is not barred by our previous decision in Gay Law Students Assn. v. Pacific Tel. & Tel. Co. (1979) 24 Cal.3d 458. In that case, we refused to give an expansive interpretation to former Labor Code section 1410 et seq. (formerly entitled the California Fair Employment Practices Act (FEPA); currently enacted as Gov. Code, § 12920 et seq., entitled the Fair Employment and Housing Act), which prohibited discrimination in employment on the grounds of race, religious creed, color, national origin, ancestry, physical handicap, medical condition, marital status, sex or age. We rejected the argument that discrimination against homosexuals was barred by the act, and distinguished the act from section 51 as interpreted in Cox. “[W]hereas the Unruh Act represented a codification of the common law principle barring all discrimination by public accommodations in the provision of services, the prohibitions on employment discrimination contained in the FEPA are in no sense declaratory of preexisting common law doctrine but rather include areas and subject matters of legislative innovation, creating new limitations on an employer’s right to hire, promote or discharge its employees. Under these circumstances, the rationale of Cox is inapplicable to the FEPA, and the specifically enumerated categories as to which discrimination is prohibited cannot be viewed as simply `illustrative.’ Indeed, the fact that the Legislature has repeatedly amended the FEPA in recent years, protecting successively the categories of sex (Stats. 1970, ch. 1508, § 4, p. 2995), age (Stats. 1972, ch. 1144, § 1, p. 2211; Stats. 1977, ch. 851, § 2, p. 2553), physical handicap (Stats. 1973, ch. 1189, § 6, p. 2501), medical condition (Stats. 1975, ch. 431, § 5, p. 925) and marital status (Stats. 1976, ch. 1195, § 5, p. 5461), affords a rather strong indication that the Legislature itself does not regard the original 1959 act as a bar to all forms of arbitrary discrimination.” (Gay Law Students, supra, at p. 490.)
The history of former Labor Code section 1410 et seq. (FEPA) is quite distinguishable from that of section 53. First, the former FEPA was originally enacted in 1959 (Stats. 1959, ch. 121, § 1, pp. 1999-2005), the same year that section 51 was substantially amended, yet FEPA was placed in the Labor Code and not in the Civil Code as was section 53 two years later.
Second, the former FEPA was the subject of numerous amendments setting forth additional categories of barred discrimination. By contrast, both section 51 and 53 were amended but once, in the same legislation.
[800] Third, when the former FEPA was repealed (Stats. 1980, ch. 992, § 11, p. 3166), it was reenacted with substantial changes as the Fair Employment and Housing Act (Stats. 1980, ch. 992, § 4, pp. 3140-3165; Gov. Code, § 12900 et seq.): a combination of prohibitions of discrimination in employment and housing in the same legislation. The Legislature did not, however, repeal section 53, which nullifies discriminatory restrictions on the use or occupation of real property, but left that section intact.
Thus, it is abundantly clear that the Legislature did not intend section 53 to receive the narrowing interpretation given both the former FEPA and the current Fair Employment and Housing Act. Instead, section 53, remaining untouched and in close physical proximity to section 51, and containing identical language to section 51 in its critical phrase, must be given the same broad interpretation as received by section 51 in Coxand Wolfson. Therefore, I would also hold that section 53 invalidates any covenant, code or restriction which discriminates against families with children in the conveyance, occupation and use of real property.
MOSK, J.
I dissent.
Once again a majority of this court undertake to legislate in a field — age preference — in which the Legislature has deliberately and repeatedly refused to act over the past six or more years. Having recently devised a new edict that there can be no age barriers in the business of rentals (Marina Point, Ltd. v. Wolfson (1982) 30 Cal.3d 721), the majority now extend that rule by holding that a nonprofit association of condominium apartment owners is a “business” and therefore subject to the same prohibition against discrimination that is imposed on true business establishments.
The majority are in error on both issues involved in this case. First, age preference has consistently been recognized as valid rather than invidious discrimination, both by the federal government and by the Legislature of California. Second, an association of homeowners — whether their homes are separate premises, or part of one structure as in a condominium apartment — cannot by any stretch of judicial imagination be held to be a business.
On the first point it bears emphasis that the United States Congress has adopted a number of programs to provide housing exclusively for those over 62. (See generally 12 U.S.C. § 1701 et seq., 42 U.S.C. § 1485 et seq.) If an age restriction is valid at age 62, why cannot an age restriction be placed at age 18? Age preference is age preference, regardless of the precise chronological point at which it is placed.
[801] Meanwhile our state Legislature, with knowledge that age preferences have been established in a number of housing developments, and that each was upheld whenever challenged in court (e.g., Ritchey v. Villa Nueva Condominium Assn. (1978) 81 Cal. App.3d 688; Flowers v. John Burnham & Co.(1971) 21 Cal. App.3d 700), not only failed to add age to the other categories in Civil Code sections 51 and 53 which prohibit discrimination, but emphatically refused to do so whenever age was proposed as an addition to those sections. I fail to understand how my colleagues can arrogate to themselves the right to legislate in an area in which the Legislature has deliberately refused to do so.
Not only has the Legislature declined to outlaw age preferences, as recently as 1976 it placed its approval once again on Civil Code section 1355 which specifically directs, in the case of condominiums, that restrictions be recorded and they “shall be enforceable equitable servitudes where reasonable, and shall inure to and bind all owners of condominiums in the project. Such servitudes, unless otherwise provided, may be enforced by any owner of a condominium….” The Legislature put only one limitation on the nature of restrictions that may be enforceable: they may not violate Civil Code section 711, which prohibits restraints on alienation. Indeed, the Legislature has preempted the entire field of condominium regulation in Civil Code section 1350 et seq., by adopting a uniform, comprehensive and pervasive means of creating condominium projects and defining the rights and obligations of owners of such projects.
On the second issue, the majority rely on Marina Point, supra, in which a divided court attempted to justify prohibiting age preference in the business of rental housing. In purporting to distinguish — and to permit — some age preferences, the majority’s reasoning in that case seemed to depend on the “particular appurtenances and exceptional arrangements” (30 Cal.3d at p. 742) for those housing units which are reserved for the elderly. Apparently my colleagues were primarily contemplating the archetypical homes for the aged and infirm — the “old folks’ home.” But their limited exception for the aged overlooked the numerous housing developments for those not elderly, but merely over 45, or over 55, or “senior citizens” — middle-aged or older persons who, in the words of Justice Richardson, dissenting in Marina Point, “having worked long and hard, having raised their own children, having paid both their taxes and their dues to society retain a right to spend their remaining years in a relatively quiet, peaceful and tranquil environment of their own choice” (id., p. 745).
Despite my misgivings in Marina Point, and those of Justice Richardson, I accept its result under compulsion. But Marina Point involved a business, a rental business. It did not affect the rights of individual owners in a condominium, bound together in a voluntary association operating for no profit, [802] for no business purpose, solely for protection of the owner-members. Village Green owns no property; the transformation of such a loosely knit protective association into a “business” is stretching the concept of an entrepreneurial venture beyond all reason.
The Unruh Act (Civ. Code, § 51) provides, in relevant part: “All persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, or national origin are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.” (Italics added.)
Although the term “business establishments” is not defined in the foregoing code section, Chief Justice Gibson writing for a unanimous court in Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 468, defined the word “business” as: “[E]verything about which one can be employed and it is often synonymous with `calling, occupation, or trade, engaged in for the purpose of making a livelihood or gain.‘” (Italics added.) Again in Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 500, this court, in discussing the 1959 amendments to section 51, stated in a unanimous opinion, “there is no indication that the Legislature intended to broaden the scope of section 51 to include discrimination other than those made by a `business establishment’ in the course of furnishing goods, services or facilities to its clients, patrons or customers.” (Italics added.) The foregoing clearly demonstrate that the term “business establishments,” as used in the Civil Code, is intended to apply only to commercial enterprises which serve customers, clients or patrons, and not to organizations which are in no way commercial or profit-seeking, such as a homeowners association.
Marina Point is not inconsistent with the foregoing. The majority opinion therein used the terms “business enterprise,” “business establishment,” or “entrepreneur” in referring to Civil Code section 51 on no less than 22 separate occasions, including the following quotes which clearly reveal the inapplicability of the section to a homeowners association: “As our prior decisions teach, the Unruh Act preserved the traditional broad authority of owners and proprietors of business establishments to adopt reasonable rules regulating the conduct of patrons or tenants ….” (30 Cal.3d at p. 725, italics added.) “As we stated in Cox: `In holding that the Civil Rights Act forbids a business establishment generally open to the public from arbitrarily excluding a prospective customer, we do not imply that the establishment may never insist that a patron leave the premises. Clearly, an entrepreneur need not tolerate customers who damage property, injure others or otherwise disrupt his business.” (Id., p. 737, italics added.) “As these examples demonstrate, the exclusion of individuals from places of public accommodation or other business enterprises covered by [803] the Unruh Act on the basis of class or group affiliation basically conflicts with the individual nature of the right afforded by the act of access to such enterprises…. [¶] As our decisions in Cox, Orloff and Stouman teach, although entrepreneurs unquestionably possess broad authority to protect their enterprises from improper and disruptive behavior, under the Unruh Act entrepreneurs must generally exercise this legitimate interest directly by excluding those persons who are in fact disruptive. Entrepreneurs cannot pursue a broad status-based exclusionary policy that operates to deprive innocent individuals of the services of the business enterprise to which section 51 grants `all persons’ access.” (Id., p. 740, italics added.)
A homeowners association, the principal function of which is to perform or arrange for the services an owner of a single family dwelling would normally perform or arrange — such as mowing lawns, fixing defective plumbing, repairing roofs, cutting trees and watering gardens — does not come within the definition of the term “business establishment” as it is used throughout the decision in Marina Point. The association has no patrons, tenants or customers, only dues-paying members; it is in no way entrepreneurial in nature; and it is not open for public patronage. To consider the association a “business enterprise” under the Unruh Act would require the ludicrous holding that the ownerresident of a single family dwelling is engaged in a “business enterprise” when he or she hires a gardener or a plumber.
Again in Gay Law Students Assn. v. Pacific Tel. & Tel. Co. (1979) 24 Cal.3d 458, 490, this court emphasized that the Unruh Act represented a codification of the common law barring discrimination “by public accommodations in the provision of services” (italics added) and that other statutes on this subject “are in no sense declaratory of preexisting common law doctrine but rather include areas and subject matters of legislative innovation, creating new limitations.” It followed that the statutory provisions were to be strictly construed, not merely deemed illustrative. There the court was concerned with employment practices, which would seem to be at least a first cousin to housing practices.
It is strange that the concurring opinion relies heavily upon a letter from one legislator to the Governor. That the quotation is from Marina Point is slim rebuttal to the rule this court recently declared in California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 701: “There are sound reasons underlying the rule against admitting statements of personal belief or intent by individual legislators on the issue of legislative intent … there is concern that letters such as those sent to the Governor on the question of signing the bill may never have been exposed to public view so that those with differing opinions as to the bill’s meaning and scope had an opportunity to present their views also…. The statement reveals [804] only the author’s personal opinion and understanding and accordingly, is not a proper subject for consideration in determining the Legislature’s intent….” The legislator, of course, was merely 1/120 of the Legislature, which as a body has consistently refused to add age restrictions to either Civil Code sections 51 or 53.
The result in this case is disastrous for the many well-conceived, constructively operated developments in this state limited to persons over a prescribed age. They may not be a major factor in other jurisdictions, but they are particularly significant in California, which has the enticing environment and equable climate to attract many persons of middle and older age. These men and women, many of them having earned their right to retirement in other parts of the country, now make a major contribution to the economy of our state. Their comfort and peace of mind should not be deemed expendable on the altar of judicial creativity.
I would affirm the judgment.
Richardson, J., concurred.
[1] The parties do not dispute that the CC & Rs run with the property.
[2] The complaint also alleged that the age restriction violated: (1) the Los Angeles City Ordinance which prohibits discrimination in rental housing on the basis of age, parenthood, or pregnancy; (2) the Fourteenth Amendment of the United States Constitution and article I, section 1, of the California Constitution; and (3) the California Fair Housing Law (Health & Saf. Code, § 35700 et seq.).
[3] Unless otherwise noted, all section references hereafter are to the Civil Code.
Section 51 provides in relevant part: “This section shall be known, and may be cited, as the Unruh Civil Rights Act. [¶] All persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, or national origin are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.”
[4] The developer who established the Village Green CC&Rs, of course, would similarly be subject to the act. Thus the age restriction in this case, which was established by the developer, is invalid. This does not end our inquiry, however, since, as the association points out, it could simply cancel that age restriction and adopt one of its own. We therefore must also determine whether the association itself is a “business establishment” within the meaning of the act.
[5] As introduced, the bill read in part: “All citizens within the jurisdiction of this State, no matter what their race, color, religion, ancestry, or national origin, are entitled to the full and equal admittance, accommodations, advantages, facilities, membership, and privileges in, or accorded by, all public or private groups, organizations, associations, business establishments, schools, and public facilities; to purchase real property; and to obtain the services of any professional person, group or associations.” (See Burks v. Poppy Construction Co., supra, 57 Cal.2d at p. 469, fn. 3.)
[6] Assigned by the Chairperson of the Judicial Council.
[7] Unless otherwise indicated, all references hereinafter are to the Civil Code.
[8] Thus, as in Wolfson, restricting occupancy in a particular neighborhood to the elderly to create a senior environment may prove to be rationally related to a legitimate purpose, and not constitute arbitrary discrimination under section 53.
Martin v. Bridgeport Community Association
[CC&R Enforcement; Renter Standing; Attorney’s Fees] The right to enforce CC&Rs is tied to ownership in a property; renters do not have standing to sue a HOA for a violation of its CC&Rs. Plantiff’s lack of standing does not preclude Defendant’s recovery of attorney’s fees under the Davis-Stirling Act.
OPINION
JACKSON, J.—
Plaintiffs James A. Martin and his wife, RaeAnn, appeal from a judgment against them, including the award of attorney’s fees and costs, entered after the trial court sustained a demurrer in favor of defendant Bridgeport Community Association. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND [1]
Richard and Rachel Peterson (the Petersons) purchased a home constructed by Richmond American Homes (Richmond) in a planned development community named Bridgeport in Santa Clarita at 23944 Windward Lane, lot 33 (the Property). The Bridgeport Community Association (BCA) was the homeowners association responsible for managing the common areas and enforcing the Master Declaration of Covenants, Conditions, and Restrictions for Bridgeport (the CC&Rs) and Rules and Regulations (the R&Rs) for the community.
Pursuant to an arrangement with the Petersons, James Martin and his wife, RaeAnn (the Martins), agreed that the Martins would live at the Property and [1028] pay all the costs involved with the Property, including the mortgage payments. RaeAnn Martin is the Petersons’ daughter. They also agreed that the Martins would deal directly with BCA on any issues regarding the Property. The Petersons executed a power of attorney to that effect, which was accepted by BCA. The Petersons agreed to assign all their rights, title, and interest in their causes of action stated in the FAC to the Martins.
During construction of the home on the Property, the Petersons and the Martins observed that the size of lot 33 where the construction was occurring was smaller than represented in the purchase transaction. Richmond agreed to move the northern property line 10 feet to include approximately 5593 square feet within the lot 33 lot lines (Adjustment Area). This required two separate lot line adjustments (Lot Line Adjustment #1 and Lot Line Adjustment #2). Before either adjustment could be completed, Richmond transferred the Adjustment Area to BCA as part of the common area.
As the result of negotiations with BCA by the Martins on behalf of the Petersons, BCA agreed to deed the Adjustment Area to the Petersons under certain terms and conditions (BCA Lot Line Agreement), as shown by a May 8, 2004 letter from Nancy O’Neil on behalf of the BCA Board of Directors and an August 10, 2004 letter from the attorney for BCA. [2] Both letters were addressed to the Martins. The Martins accepted the terms of the agreement proposed by BCA on behalf of themselves and the Petersons. Both letters represented that the BCA board had agreed to completing the Lot Line Adjustment #2 and the transfer of land, subject to the conditions that the homeowners would pay BCA’s attorney’s fees to prepare and execute the necessary documents and the homeowners would pay for the relocation of the common area sprinklers from the Adjustment Area.
After receiving notice of BCA’s agreement, the Martins invested money for fencing, landscaping and the importation of dirt on the Adjustment Area. The Martins also represented that the Petersons were not able to landscape and hardscape their front yard because they did not yet have ownership of the Adjustment Area and thus lost use of the yard for more than four years.
After lengthy delays, the City of Santa Clarita (City) approved Lot Line Adjustment #1. When BCA did not thereafter cooperate in order to begin [1029] the required City-approval process for Lot Line Adjustment #2, the Martins sought specific performance of the BCA Lot Line Agreement by filing the instant lawsuit on October 20, 2006. The original complaint named the Petersons and the Martins as the plaintiffs and BCA as the defendant. BCA filed a demurrer to the complaint, in part on the ground that the Martins lacked standing.
Then the Martins filed the FAC, the operative complaint in this action. The FAC named only the Martins as the plaintiffs. The first cause of action was for damages for breach of, and the second cause of action was for specific performance of, the BCA Lot Line Agreement. As a part of the allegations, the Martins requested that the court order BCA “to transfer title and cooperate in the approval and transfer of title to the property regarding Lot Line Adjustment #2 to Plaintiffs [the Martins].”
The third cause of action was for breach of the R&Rs of, and the fourth cause of action was for breach of the CC&Rs of, the Bridgeport Community. The fifth cause of action was for violation of Civil Code section 1363 et seq. [3]
The sixth cause of action was for intentional infliction of emotional distress. In part, the Martins alleged BCA took certain actions “in order to punish, and retaliate against, the Plaintiffs [the Martins] for enforcing their rights with respect to the Property.”
The seventh cause of action was for negligence arising from the duty of BCA to the Martins, “as residents and members of the BCA,” to use reasonable care in maintaining the common areas. The eighth cause of action was for negligence per se for violation of sections 1363 and 1364.
At the hearing on July 16, 2007, the trial court ruled that the demurrer to the FAC was sustained with leave to amend as to the first through the fifth, and the seventh and eighth causes of action, on the ground that the Martins lacked standing. With regard to the scope of the leave to amend, the trial court stated: “I am going to allow [plaintiffs’ counsel] leave to amend to bring in the Petersons, and I will give [counsel] one last shot at seeing if there’s any other claims the Martins have that can be pled.” As to the sixth cause of action, the trial court sustained the demurrer without leave to amend, on the ground that the facts did not support a finding of sufficiently outrageous conduct as is necessary for recovery based upon intentional infliction of emotional distress. [4] [1030]
The second amended complaint (SAC) was filed on August 6, 2007. The Petersons were the only named plaintiffs. They alleged only four causes of action: first cause for breach of the R&Rs, second cause for breach of the CC&Rs, third cause for violation of sections 1363 and 1364, and fourth cause for negligence per se based on the violation of the same statutes.
BCA filed a demurrer to the SAC. After hearing on December 10, 2007, the trial court sustained the demurrer with leave to amend as to the first, second and third causes of action on the ground of failure to allege sufficient facts to support the causes of action. The court sustained the demurrer to the SAC without leave to amend as to the fourth cause of action.
The Petersons filed the third amended complaint on January 4, 2008. Only the Petersons were named as plaintiffs.
Also on January 4, 2008, BCA filed a request that the court enter judgment against the Martins in favor of BCA. The request represented that on July 16, 2007, the trial court granted BCA’s demurrer to the FAC “without leave to amend,” except leave to amend to substitute the Petersons, as the real parties in interest, for the Martins as plaintiffs, and the Petersons filed the SAC.
BCA also filed a motion for an award of attorney’s fees pursuant to sections 1354, subdivision (c), and 1717, subdivision (a). The trial court granted BCA’s motion for award of attorney’s fees in the amount of $29,371.39 for defense against the Martins. The trial court entered judgment in favor of BCA against the Martins and included the award of attorney’s fees and costs to BCA. [5]
DISCUSSION
The Martins contend that trial court erred in sustaining BCA’s demurrer on the ground that they lacked standing to assert the first through fifth, seventh and eighth causes of action. They claim they had standing as to all the causes of action, in that the Petersons assigned “all of their rights, title, and interest in their causes of action stated in the First Amended Complaint . . . to the Martins.” As to individual causes of action, the Martins also [1031] present other grounds upon which they contend they have standing. The Martins further claim that the trial court erred in including in the judgment an award of attorney’s fees and costs pursuant to section 1354. We disagree and affirm the judgment.
I. Standard of Review
When a demurrer is sustained by the trial court, we review the complaint de novo to determine whether, as a matter of law, the complaint states facts sufficient to constitute a cause of action. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) Reading the complaint as a whole and giving it a reasonable interpretation, we treat all material facts properly pleaded as true. (Ibid.) The plaintiff has the burden of showing that the facts pleaded are sufficient to establish every element of the cause of action and overcoming all of the legal grounds on which the trial court sustained the demurrer, and if the defendant negates any essential element, we will affirm the order sustaining the demurrer as to the cause of action. (Cantu v. Resolution Trust Corp.(1992) 4 Cal.App.4th 857, 879-880.) We will affirm if there is any ground on which the demurrer can properly be sustained, whether or not the trial court relied on proper grounds or the defendant asserted a proper ground in the trial court proceedings. (Id. at p. 880, fn. 10.)
A trial court has discretion to sustain a demurrer with or without leave to amend. (Zelig v. County of Los Angeles, supra, 27 Cal.4th at p. 1126.) If we determine that the plaintiff has met its burden to demonstrate that a reasonable possibility exists that the defect can be cured by amendment of the pleading, then the trial court has abused its discretion in denying leave to amend and we reverse the denial. (Ibid.) Otherwise, we affirm the judgment on the basis that the trial court has not abused its discretion. (Ibid.)
[1] Standing is the threshold element required to state a cause of action and, thus, lack of standing may be raised by demurrer. (Buckland v. Threshold Enterprises, Ltd. (2007) 155 Cal.App.4th 798, 813; Blumhorst v. Jewish Family Services of Los Angeles (2005) 126 Cal.App.4th 993, 1000.) To have standing to sue, a person, or those whom he properly represents, must “‘have a real interest in the ultimate adjudication because [he] has [either] suffered [or] is about to suffer any injury of sufficient magnitude reasonably to assure that all of the relevant facts and issues will be adequately presented.’ [Citation.]” (Schmier v. Supreme Court (2000) 78 Cal.App.4th 703, 707.) Code of Civil Procedure section 367 establishes the rule that “[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.” [2] A real party in interest is one who has “an actual [1032] and substantial interest in the subject matter of the action and who would be benefited or injured by the judgment in the action.” (Friendly Village Community Assn., Inc. v. Silva & Hill Constr. Co. (1973) 31 Cal.App.3d 220, 225.) Upon review of action on a demurrer, we review the determination of standing de novo.
II. Standing
The Martins’ causes of action relate to BCA’s actions with regard to, or duties with respect to, the Property, that is, lot 33 owned by the Petersons, as part of a planned development subject to the Davis-Stirling Act. The causes of action other than the first and second seek either the enforcement of governing documents of the development, including its CC&Rs and R&Rs, or redress for violations of the Davis-Stirling Act. The Martins did not claim to have, and the record does not show that the Martins ever had, any ownership interest in the Property. As we explain below, ownership in the Property is a prerequisite to standing to assert each of the causes of action as each seeks redress for violations of rights of the owners of the Property, for which the causes of action are not assignable to the Martins.
[3] The Martins contend they have standing on the basis that the Petersons assigned to them all the Petersons’ interests in the causes of action pursuant to section 954, [6] which permits an owner of a chose in action to assign it to another person where it arises “out of the violation of a right of property, or out of an obligation.” Such types of choses in action include, for example, breach of contract or damage to personal or real property. (Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492, 504; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 720, p. 805.) Exceptions to the general rule of assignability under section 954 are choses in action for wrongs done to the person, the reputation or the feelings of the injured party, and to contracts of a purely personal nature, like promises of marriage. (Fireman’s Fund Ins. Co. v. McDonald, Hecht & Solberg (1994) 30 Cal.App.4th 1373, 1381.)
Assignability under section 954 is limited to “a thing of action,” a term defined in section 953 as “a right to recover money or other personal property by a judicial proceeding.” By definition, “[t]he words ‘personal property’ include money, goods, chattels, things in action, and evidences of debt,” and do not include “lands, tenements, and hereditaments,” which instead are “real property.” (§ 14.) [1033]
A. First and Second Causes of Action
The first cause of action for breach of the BCA Lot Line Agreement and the second cause of action for specific performance of the Agreement involve a right to recover an ownership interest in real property and not “a right to recover money or other personal property.” (§ 953.) Thus, contrary to the Martins’ contentions, the first and second causes of action were not choses of action assignable under section 954. They could be brought only by the real parties in interest, the Petersons. (Code Civ. Proc., § 367.)
The Martins also claim they had standing as parties to, or third party beneficiaries of, the BCA Lot Line Agreement. [7] They rely on the facts that they negotiated the agreement and lived on the property which was affected, and “accepted the terms of the agreement . . . on behalf of themselves and the Petersons.” Also, they claim that the letters from the BCA board of directors’ representative and BCA’s attorney show they were parties, in that the letters were addressed to them and phrased as if they were parties.
In the FAC, however, the Martins admitted that the Petersons were the owners of the Property and the parties to be bound by the Agreement, and that the Martins’ related actions were “on behalf of the Petersons.” In the first cause of action, the Martins state that BCA “agreed in writing to accept the offer made by the [Martins] on behalf of the Petersons at a board meeting[] . . . , to have [BCA] deed the property contained in Lot Line Adjustment #1 and Lot Line Adjustment #2, to the Petersons (collectively, the ‘BCA Lot Line Agreement’) under certain terms and conditions. . . . The Martins accepted the terms of the agreement . . . on behalf of themselves and the Petersons.” As a result of BCA’s actions, “the Petersons were not able to landscape and hardscape their front yard . . . and side yard because they do not yet have their ownership of” the Adjustment Area. “As a result they have lost usage of their usable yard for more than four years . . . .”
As the quoted material from the FAC shows, the Martins also admitted that specific performance would require BCA to deed the Adjustment Area to the Petersons, not to the Martins. Thus, they had no standing to assert a cause of action, as they did, seeking specific performance of the Agreement “to transfer title and cooperate in the approval and transfer of title to the property . . . to Plaintiffs [i.e., the Martins].” [1034]
[4] The same facts that show that the Martins were not parties to the Agreement also show that the Martins were not intended to be third party beneficiaries of the Agreement. In order to qualify as third party beneficiaries, the Martins were required to plead and prove that the Agreement was made for their benefit. (Schonfeld v. City of Vallejo (1975) 50 Cal.App.3d 401, 420.) “‘The test in deciding whether a contract inures to the benefit of a third person is whether an intent to so benefit the third person appears from the terms of the agreement . . . .’ [Citation.]” (Ibid.) The fact that a third party is incidentally named in the contract, or that the contract, if carried out according to its terms, would inure to his benefit, is not sufficient to entitle him to enforce it. (Jones v. Aetna Casualty & Surety Co. (1994) 26 Cal.App.4th 1717, 1724-1725.) Reading the agreement as a whole in light of the circumstances under which it was made, the terms of the agreement must clearly manifest an intent to make the obligation inure to the benefit of the third party. (Id. at p. 1725; Schonfeld, supra, at p. 421.)
The Martins did not attach a signed written Agreement to the FAC. Neither did they quote the terms of the Agreement in the body of the FAC. Even if we assume that the facts pleaded were sufficient to allege an enforceable contract, as we previously discussed, the facts pleaded by the Martins were that the BCA Lot Line Agreement was made in order to require the BCA to deed the Adjustment Area to the Petersons, and the Martins’ role was to negotiate the Agreement on behalf of the Petersons. Given their role, there is no significance to the fact that the letters from BCA’s board and attorney were addressed to the Martins. (See Jones v. Aetna Casualty & Surety Co.,supra, 26 Cal.App.4th at pp. 1724-1725.) The letter from BCA’s board stated that the board approved the request for the “corner of your lot to be deeded over to you [i.e., the Petersons]” on the condition that the “homeowners” would bear the financial responsibility for costs of legal fees and moving the common area sprinklers from the lot to the common area. The references to “your lot,” “deeded over to you,” and the “homeowners” could only be intended to be to the Petersons, in that the Martins owned no lot and were not homeowners in the Bridgeport Community. Assuming that the letter correctly reflects the content of the Agreement, there is nothing in its terms that clearly manifests an intent by BCA or the Petersons to make the obligation inure to the benefit of the Martins. We conclude that the facts pleaded do not support a determination that the Martins are third party beneficiaries of the BCA Lot Line Agreement. (Id. at p. 1725; Schonfeld v. City of Vallejo, supra, 50 Cal.App.3d at p. 421.)
[5] The Martins further contend that “[w]hether or not the property of [Lot Line Adjustment] #2 could be deeded to the Martins, they were entitled to at least receive an assignment of the damages.” As the Martins assert, a [1035] claim for damages to real property may be assigned without transferring title or possession of the damaged property. (Stapp v. Madera Canal & Irr. Co. (1917) 34 Cal.App. 41, 46.) In their prayer for relief, the Martins included a general request for damages as to all causes of action, but in the first and second cause of action, however, the Martins did not allege that the Petersons suffered monetary damages. [8]
B. Third Through Fifth, Seventh and Eighth Causes of Action
The third through fifth, seventh and eighth causes of action are premised on duties BCA owed to the Petersons under the Bridgeport governing documents or the Davis-Stirling Act pertaining to rights and restrictions incident to ownership of real property. These are mutual among all of the lot owners in Bridgeport. (Werner v. Graham (1919) 181 Cal. 174, 183-184.) What is at issue is the right of enforcement of the governing documents and the Davis-Stirling Act.
The Martins contend that, under the CC&Rs and sections 1351, 1354 and 1363 et seq., they are “bound parties” and, as such, have standing to enforce the CC&Rs and R&Rs. [9] They argue that, under the CC&Rs definitions, “bound parties” include “all occupants, guests and invitees of any Unit,” and therefore, the CC&Rs allow enforcement by them in their capacity as occupants. (See CC&Rs, art. III, § 3.1(e).) They assert that their standing to enforce the CC&Rs is also shown by the fact that the CC&Rs require the owner of a Unit to provide his or her lessee with copies of the governing documents. (See CC&Rs, art. III, § 3.1(c).) In support of their contention, they cite legal authority only for the proposition that CC&Rs are interpreted like a contract. (Cebular v. Cooper Arms Homeowners Assn. (2006) 142 Cal.App.4th 106, 119.)
We agree that the Martins are “bound parties” as defined in the CC&Rs. They are subject to compliance with the restrictions in the governing documents. That status is different from being an owner of a separate interest who, by virtue of his ownership, is also a BCA member. Section 1354 provides that CC&Rs “in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all [1036] owners of separate interests in the development. Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both.” (Id., subd. (a).) Subdivision (b) of section 1354 provides that “[a] governing document other than the declaration may be enforced by the association against an owner of a separate interest or by an owner of a separate interest against the association.” Section 1351, subdivision (l)(3) provides that “[i]n a planned development, ‘separate interest’ means a separately owned lot . . . .”
[6]In the instant case, as owners of lot 33, the Petersons qualify as “an owner of a separate interest” entitled to enforce the CC&Rs, the R&Rs and other governing documents of Bridgeport. (§§ 1351, subd. (l)(3), 1354, subds. (a), (b).) The Martins do not qualify. What is bound by an equitable servitude enforceable under CC&Rs is a parcel, a lot, in a subdivided tract, not an individual who has no ownership interest in the lot. (See § 1354, subd. (a).) “‘[W]hen the owner of a subdivided tract conveys the various parcels in the tract by deeds containing appropriate language imposing restrictions on each parcel as part of a general plan of restrictions common to all the parcels and designed for their mutual benefit, mutual equitable servitudes are thereby created in favor of each parcel as against all the others.’ [Citation.]” (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 379-380.) Accordingly, the right of enforcement is inextricable from ownership of real property–a parcel, a lot–in a planned development such as Bridgeport and, thus, cannot be assigned absent a transfer of ownership of the parcel to which it applies.
[7] The Petersons’ Property and their membership in BCA, and consequently the rights of enforcement and duties they are owed, are indivisible interests under applicable law and Bridgeport governing documents. Section 1358, subdivision (c), provides that, in a planned development, any transfer of a separate interest includes the undivided interest in the common areas and any transfer of the separate interest owner’s lot also includes membership in the association. Under the CC&Rs, an owner is not allowed to subdivide a Unit or change its boundary lines. (CC&Rs, art. III, § 3.1(d).) The CC&Rs state that “[e]very Owner shall be a Member of [BCA]. There shall be only one membership per Unit,” regardless of the number of co-owners of the Unit. (CC&Rs, art. VI, § 6.2; see also Corp. Code, § 7312.)
[8] The fifth and eighth causes of action are for relief based upon the violation of provisions of the Davis-Stirling Act, sections 1363 and 1364. Section 1363 provides that a common interest development such as Bridgeport must be managed by an association such as BCA and sets forth duties and powers of the association. As previously explained, membership in the association is limited to owners of separate interests. Section 1364 [1037] apportions responsibilities for maintenance of the common interest development between the association and owners of separate interests. As we previously concluded, the Petersons’ rights, including membership in BCA, and the duties of BCA to the Petersons as owners of a separate interest, lot 33, are not assignable, whether set forth in the Bridgeport governing documents or in the Davis-Stirling Act.
The Martins cite no provision in the Davis-Stirling Act that authorizes an owner or a member to assign any right or obligation to any third party. The Martins mistakenly argue that section 1351 does not specifically define the term “owner,” which is used in section 1363 et seq., and, therefore, they have standing to seek redress for violations of sections 1363 and 1364. The references in section 1364, subdivisions (a) through (c), however, are to an owner of a “separate interest,” which is defined as noted in section 1351. Section 1364 clearly differentiates between an owner and residents such as the Martins. Section 1364, subdivision (e), states: “For purposes of this section, ‘occupant’ means an owner, resident, guest, invitee, tenant, lessee, sublessee, or other person in possession on the separate interest.” Section 1364 primarily deals with the association’s rights and responsibilities, including notifying “occupants,” with respect to the presence of wood-destroying pests or organisms. (§ 1364, subds. (b), (d).)
In the seventh cause of action for negligence, the Martins claimed that BCA had a duty to them, “as residents and members,” which BCA breached by improper use and maintenance of the watering system, which caused water damage to the Property. As previously discussed, they are not and do not qualify as members of the BCA. By law under the Davis-Stirling Act and equitable servitude principles applicable to the CC&Rs, only owners are members of the BCA.
Citing Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, the Martins contend that BCA had a common law duty “to exercise due care for the residents’ safety in those areas under [the association’s] control,” similar to a duty a landlord owes to his tenants. (Id. at p. 499.) The duty they pleaded as being breached, however, was BCA’s duty to maintain the common grounds. That duty arises out of the Davis-Stirling Act and the CC&Rs, not out of common law principles of negligence. Thus, as we previously concluded, it is a duty owed only to members of BCA, i.e., the owners.
The Martins argue that they suffered damages to their vehicle, personal injury, loss of work, clean up due to the excess water, interference with their peaceful enjoyment of the Property and loss of use and enjoyment of the Property, and, therefore, have standing to bring negligence claims against [1038] BCA on the basis of nuisance and trespass under section 3479, the statutory definition of nuisance, and related law. [10] These were not the elements the Martins pleaded as negligence, however. The damage they asserted was to the Property owned by the Petersons due to breach of a duty BCA owed to the Petersons.
Not being owners and, therefore, having no authority to enforce the CC&Rs as equitable servitudes arising under the CC&Rs, the Martins are not the real parties in interest for the seventh cause of action and do not have standing to maintain the cause of action. (§ 1354, subd. (a); Code Civ. Proc., § 367.)
[9] In summary, the causes of action are not assignable and the Petersons, as owners of the Property, are the real parties in interest. The Martins failed to establish standing under any of the other arguments they advanced. Given that the causes of action are incidents of the Petersons’ ownership of the Property, and the Martins have no ownership in the Property, we conclude that none of the causes of action can be reasonably amended to give the Martins standing. Accordingly, the court’s action in sustaining the demurrer was proper.
The Martins were given leave to amend the complaint to state some other cause of action for which the Martins may have had standing and to substitute the Petersons as real parties in interest for the causes of action at issue in this appeal. The SAC was filed, but the Martins did not take the opportunity to state any such causes of action. Thus they forfeited the right to do so and remain a part of the action. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1091.) Accordingly, the trial court properly entered judgment against the Martins in favor of BCA.
III. Attorney’s Fees and Costs
[10] The Martins contend that the trial court erred in awarding attorney’s fees and costs to BCA. Section 1354, subdivision (c), states: “In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.” The Martins contend that, nevertheless, if the trial court’s finding that they did not have standing was based on the fact that they had no ownership in the Property and the CC&Rs as well as the R&Rs are enforceable only by the Property’s owners under section 1354, [1039] then there was no basis for the fees and costs award. The mandatory attorney’s fees and costs award under section 1354, subdivision (c), applies when a plaintiff brings an action to enforce such governing documents, but is unsuccessful because he or she does not have standing to do so. (Farber v. Bay View Terrace Homeowners Assn. (2006) 141 Cal.App.4th 1007, 1014.) Accordingly, we conclude that the trial court properly awarded attorney’s fees and costs to BCA for defense against the complaints in which the Martins were named plaintiffs. (Ibid.)
DISPOSITION
The judgment, including the award of attorney’s fees, is affirmed. BCA is to recover its costs on appeal.
[1]. In reviewing the propriety of sustaining a demurrer, we “‘treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.'” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Accordingly, the statement of facts is based on the factual allegations in the first amended complaint (FAC), which was the subject of the demurrer at issue here.
[2]. The letter from the BCA board’s representative stated: “The Board considered your request for the additional parcel of land that includes the triangle-shaped piece of land on the northwest corner of your lot to be deeded over to you. The Board granted your request with the following conditions: [¶] 1. The homeowners will be financially responsible for the legal fees of [BCA’s] attorney to prepare and execute the necessary documents. [¶] 2. The homeowners will be financially responsible for the cost of moving the common area sprinklers to the common area by [BCA’s] landscape maintenance company.”
[3]. Section 1363 et seq. is a part of the Davis-Stirling Common Interest Development Act (Davis-Stirling Act) codified in the Civil Code beginning at section 1350. Further statutory references are to the Civil Code, unless otherwise identified.
[4]. The Martins do not challenge the trial court’s ruling as to the sixth cause of action.
[5]. We deny the Martins’ request for judicial notice of “the fact that [BCA] filed an action on November 27, 2007, after the demurrer on the FAC was decided by the Trial Court finding that the Martins lacked standing. [Citation.] [¶] The new action is against the Martins as well as the Petersons to enforce the Governing Documents (Los Angeles [County] Superior Court Case No. PC 041756, Bridgeport Community Association, Inc. v. James A. Martin et al.).” A copy of the then-current civil case summary for the lawsuit was attached as an exhibit to the request. Our review is limited to the trial court’s judgment against the Martins in the instant action. We will not consider evidence offered on appeal which was not before the trial court in connection with the judgment. (In re Zeth S. (2003) 31 Cal.4th 396, 405.)
[6]. Section 954 states: “A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.”
[7]. We render no opinion as to the existence or terms and conditions of the alleged BCA Lot Line Agreement. For the purposes of reviewing the trial court’s action on the demurrer only, for which we are required to assume the material facts pleaded to be true, we assume the Agreement existed.
[8]. In the first cause of action, the Martins allege that the Petersons lost the use of part of their yard due to BCA’s breach, but they do not allege that the Petersons incurred monetary damages.
[9]. With no legal authority cited, the Martins mistakenly assert that, given that the FAC states that BCA engaged in improper enforcement against the Martins, “this must be accepted as true.” We must accept as true only the material facts alleged in the FAC for the purpose of reviewing the trial court’s demurrer ruling. (Zelig v. County of Los Angeles, supra, 27 Cal.4th at p. 1126.) “Improper enforcement” is an alleged conclusion of law, however, and we are not required to accept such conclusions as true. (Ibid.)
Villa De Las Palmas Homeowners Association v. Terifaj
[CC&R Amendments; Binding Effect] CC&R amendments enacted by homeowners are accorded the same presumption of reasonableness as those imposed by developer; CC&R amendments are binding against both current and future homeowners.
Law Office of Russell P. Nowell and Russell P. Nowell for Defendant and Appellant. Jeff Thom for California Council of the Blind as Amicus Curiae on behalf of Defendant and Appellant.
Fiore, Racobs & Powers, Peter E. Racobs and Margaret G. Wangler for Plaintiff and Respondent.
OPINION
MORENO, J.-
Civil Code section 1354, subdivision (a), [FN. 1] provides that covenants and restrictions in the declaration of a common interest development “shall be enforceable equitable servitudes, unless unreasonable.” Section 1355, subdivision (b), in turn, provides that the declaration may be amended if certain procedures are followed. In Nahrstedt v. Lakeside Village Condominium Association (1994) 8 Cal.4th 361 (Nahrstedt), we construed subdivision (a) of section 1354 and held that covenants and restrictions in the declaration are enforceable “unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.” (Nahrstedt, supra, at p. 382.) The use restriction in that case, a no-pet restriction, was included in a condominium development’s originating declaration and recorded prior to the conveyance of any of the units.
The questions we confront in this case are whether use restrictions added to a declaration through an amendment and recorded after a homeowner has purchased an individual unit bind such an owner, and whether the rule of Nahrstedt— that restrictions in a development’s declaration are presumed to [79] be reasonable and are enforceable unless they are arbitrary, impose an undue burden on the property or violate fundamental public policy (Nahrstedt, supra, 8 Cal.4th 361, 386) — applies to subsequently enacted restrictions. We are also called upon to decide whether the trial court abused its discretion in awarding attorney fees to the homeowners association.
[1] We conclude that under the plain and unambiguous language of sections 1354, subdivision (a), and 1355, subdivision (b), use restrictions in amended declarations recorded subsequent to a challenging homeowner’s purchase of a condominium unit are binding on that homeowner, are enforceable via injunctive relief under section 1354, subdivision (a), and are entitled to the same judicial deference given use restrictions recorded prior to the homeowner’s purchase. We also conclude the trial court did not abuse its discretion in awarding attorney fees to the homeowners association as the prevailing party.
I. FACTS AND PROCEDURAL HISTORY
Villa De Las Palmas is a relatively small condominium development consisting of 24 units located in a single L-shaped building. There are 12 units each on the top and bottom levels, and all units have either a small patio or a deck, with common walls separating them. The walls, described as “pony walls,” initially extend from the unit at full height, and then slope down. Many owners, including defendant Paula Terifaj, do not make Villa De Las Palmas, which is located in Palm Springs, their primary residence, but visit only periodically or seasonally.
The individual condominium units were conveyed to the original grantees in 1962 by recorded grant deeds that contained the development’s covenants, conditions, and restrictions, also commonly known as CC & R’s. Pursuant to the 1962 deed (Declaration), all grantees were required to execute a management agreement and “covenant and agree to observe, perform and abide by any and all lawful by-laws, rules, regulations and conditions with respect to the use and occupancy of said premises which may from time to time be adopted or prescribed by the Board of Governors constituted in said Management Agreement.” Failure to abide by any covenant or restriction in the Declaration could result in forfeiture, and “any owner or occupant of any apartment upon said premises may bring legal action for injunction and/or damages against said defaulting owner . . . .” The Declaration further provided that “[t]he benefits and obligations of this deed shall inure to and be binding upon the heirs . . . and assigns of the respective parties hereto.”
Pursuant to the authority granted in the Declaration, the Villa De Las Palmas Homeowners Association (the Association) adopted a rule prohibiting [80] pets. The unrecorded rule provided: “Pets of any kind are forbidden to be kept in the apartment building or on the grounds at any time.” While the exact date of the adoption of the no-pet rule is unknown, it is undisputed that it was in existence when Terifaj purchased her unit. Terifaj, a veterinarian who purchased her unit in 1995, did not receive a written copy of the rule prohibiting pets, but she admitted at trial that she was aware of the no-pet rule when she purchased her unit.
Despite the prohibition on pets, from the time Terifaj purchased her unit until 1998, she visited her unit with her dog Lucy. When Lucy died in 1998, Terifaj acquired another dog, a female boxer, and brought her to the property. Terifaj attempted to have the Association amend the no-pet rule at the Association’s 1996 and 2000 general meetings, but was unsuccessful.
The Association repeatedly warned Terifaj that she was violating the rule prohibiting pets on the property and fined her accordingly. Terifaj, however, was undeterred and continued to bring her dog to the development. In response, in August 1999, the Association filed a complaint for injunctive and declaratory relief and nuisance, along with a motion for preliminary injunction, to compel Terifaj to abide by the no-pet rule. The trial court denied the motion for preliminary injunction in October 1999, ruling that it was not convinced the Association would prevail on the merits and that irreparable injury was not evident. The court ordered the case to nonbinding arbitration with a March 8, 2000, completion date.
In the interim between the denial of the preliminary injunction and the completion of arbitration, the members of the Association voted to amend the Declaration. In January 2000, the Association adopted and recorded the Amended and Restated Declaration of Covenants, Conditions and Restrictions (Amended Declaration), which added a no-pet restriction, providing: “No pets or animals of any kind, including without limitation, dogs, cats, birds, livestock, reptiles or poultry, may be kept or permitted in any Apartment or anywhere on the Property.” The Amended Declaration further provides that violations of the covenants and restrictions contained in the Amended Declaration are nuisances, and that such violations may be enjoined.
Based on the recorded Amended Declaration, the Association filed an amended complaint alleging the same causes of action and seeking the same relief as the original complaint. Following a bench trial, the trial court ruled in favor of the Association on all causes of action. It found the covenants and restrictions in the Amended Declaration to be enforceable equitable servitudes, granted a permanent injunction against any further violation of the no-pet restriction, and found the violation to be a nuisance. The court awarded the Association $15,000 in attorney fees. [81]
The Court of Appeal affirmed. It concluded that section 1354 “[o]n its face . . . applies to any declaration, regardless of when it is adopted and recorded.” Because the no-pet restriction was in the recorded Amended Declaration, it therefore constituted an equitable servitude under section 1354, subdivision (a). Relying on Nahrstedt, which the Court of Appeal found governed review of the pet restriction, the court held the restriction was not unreasonable.
We granted Terifaj’s petition for review.
II. DISCUSSION
As a condominium project, Villa De Las Palmas is a common interest development subject to the provisions of the Davis-Stirling Common Interest Development Act (the Davis-Stirling Act or the Act). (§ 1350 et seq.) The Davis-Stirling Act, enacted in 1985 (Stats. 1985, ch. 874, § 14, pp. 2774-2786), consolidated the statutory law governing condominiums and other common interest developments. [2] Under the Act, a common interest development is created “whenever a separate interest coupled with an interest in the common area or membership in [an] association is, or has been, conveyed” and a declaration, a condominium plan, if one exists, and a final or parcel map are recorded. [FN. 2] (§ 1352.) 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 (Nahrstedt, supra, 8 Cal.4th at p. 373).
The Act contains a fairly extensive definitions section, defining as relevant here “governing documents” and “declaration.” The declaration is defined as “the document, however denominated, which contains the information required by section 1353.” (§ 1351, subd. (h).) Section 1353 requires that declarations recorded on or after January 1, 1986, contain certain information, including the development’s covenants and restrictions. The governing documents encompass a broader category of documents, including “the declaration and any other documents, such as bylaws, operating rules of the association, articles of incorporation, or articles of association, which govern the operation of the common interest development or association.” (§ 1351, subd. (j).)
[3] The declaration is often referred to as the development’s constitution (see Rest.3d Property, Servitudes, § 6.10, com. a, p. 196; 1 Hanna & Van [82] Atta, Cal. Common Interest Developments: Law and Practice (2003) § 22:2, p. 1325) and “establish[es] a system of governance.” (Villa Milano Homeowners Association v. Il Davorge (2000) 84 Cal.App.4th 819, 827.) Importantly, it contains the development’s covenants and restrictions, which are “enforceable equitable servitudes, unless unreasonable.” (§ 1354, subd. (a).) Several provisions of the Act allow for the amendment of the declaration. Of particular relevance here is section 1355, subdivision (b) (hereafter section 1355(b)), which provides in relevant part: “Except to the extent that a declaration provides by its express terms that it is not amendable, in whole or in part, a declaration which fails to include provisions permitting its amendment at all times during its existence may be amended at any time.” [FN. 3]
Terifaj’s argument is somewhat ambiguous with respect to enforcement of restrictions contained in amended declarations. She appears to argue that such restrictions are entirely unenforceable in any manner, but also maintains that such restrictions are not enforceable pursuant to section 1354, subdivision (a), because they do not meet the requirements of equitable servitudes. Since her argument is vague, we address both contentions.
Because we are construing provisions in the Davis-Stirling Act, we briefly recite the rules of statutory construction that will guide our decision. [4] Our primary task in construing a statute is to ascertain the intent of the Legislature. (Peracchi v. Superior Court (2003) 30 Cal.4th 1245, 1253.) We make this determination by looking to the words used in the statute and giving them their plain meaning. (Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345, 358.) ” ‘. . . “If there is no ambiguity in the language of the statute, ‘then the Legislature in presumed to have meant what it said.’ ” ‘ ” (Ibid.)
A.
We must first decide whether a use restriction contained in an amended declaration is enforceable against a homeowner who acquired his or her separate interest before the challenged amendment was adopted and recorded. [5] As noted above, under the Davis-Stirling Act, a common interest [83] development may amend its declaration pursuant to the provisions of the declaration itself or under the provisions of the Act. When a declaration is silent on whether it may be amended, section 1355(b) provides that it may be amended at any time. For the following reasons, we conclude that use restrictions added to a declaration by amendment bind not only subsequent purchasers, but current homeowners as well.
This conclusion follows from the plain language of section 1355(b), which provides in part: “For purposes of this subdivision, an amendment is only effective after (1) the proposed amendment has been distributed to all of the owners of separate interests in the common interest development by first-class mail postage prepaid or personal delivery not less than 15 days and not more than 60 days prior to any approval being solicited; (2) the approval of owners representing more than 50 percent . . . of the separate interests in the common interest development has been given, and that fact has been certified in a writing, executed and acknowledged by an officer of the association; and (3) the amendment has been recorded in each county in which a portion of the common interest development is located.” (Italics added.) Additionally, a copy of the recorded amendment must immediately be mailed or delivered to all homeowners. [FN. 4] [6] In short, the statute provides that an amendment is effective after notice of the proposed amendment is given to the homeowners, a majority of the homeowners approve the amendment, and the amendment is recorded. (1 Hanna & Van Atta, Cal Common Interest Developments: Law and Practice, supra, § 22:119, p. 1439; 9 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 25:133, pp. 302-303.)
[7] Plainly read, any amendment duly adopted under this subdivision is effective against all homeowners, irrespective of when the owner acquired title to the separate interest or whether the homeowner voted for the [84] amendment. (See, e.g., 1 Hanna & Van Atta, Cal Common Interest Developments: Law and Practice, supra, § 22:119, p. 1439; 9 Miller & Starr, Cal. Real Estate, supra, § 25:133, p. 308.) Terifaj’s argument that subsequently enacted amendments are not binding on current homeowners runs counter to section 1355(b)’s express language that an amendment is effective upon the satisfaction of the requirements enumerated in that provision. Neither section 1355(b) nor any other provision in the Davis-Stirling Act exempts from compliance with amendments to the declaration homeowners who purchased their individual units prior to the amendment.
That is not surprising. To allow a declaration to be amended but limit its applicability to subsequent purchasers would make little sense. [8] A requirement for upholding covenants and restrictions in common interest developments is that they be uniformly applied and burden or benefit all interests evenly.(See, e.g., Nahrstedt, supra, 8 Cal.4th at p. 368 [restrictions must be “uniformly enforced”]; Rest.3d Property, Servitudes, § 6.10, com. f, p. 200.)This requirement would be severely undermined if only one segment of the condominium development were bound by the restriction. It would also, in effect, delay the benefit of the restriction or the amelioration of the harm addressed by the restriction until every current homeowner opposed to the restriction sold his or her interest. This would undermine the stability of the community, rather than promote stability as covenants and restrictions are intended to do.
Terifaj’s position would also, essentially, render meaningless the simple majority vote required for amendments to take effect under section 1355(b). Instead, unanimous consent would be needed, which would often be unattainable. [9] The language of section 1355(b), however, makes clear that a simple majority is all that is required before an amendment becomes effective. One reason for this is because amendment provisions are designed to “prevent[] a small number of holdouts from blocking changes regarded by the majority to be necessary to adapt to changing circumstances and thereby permit the community to retain its vitality over time.” (Rest.3d Property, Servitudes, § 6.10, com. a, p. 196.)
Subjecting owners to use restrictions in amended declarations promotes stability within common interest developments. As we observed in Nahrstedt, “[u]se restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrangement.”(Nahrstedt, supra, 8 Cal.4th at p. 372.) Such restrictions may “preclude alteration of building exteriors, limit the number of persons that [85]can occupy each unit, and place limitations on — or prohibit altogether — the keeping of pets. [Citations.]” (Id. at p. 373.) We explained that a homeowners association, “through an elected board of directors, is empowered . . . to enact new rules governing the use and occupancy of property within the [development].” (Ibid.) We further observed that “anyone who buys a unit in a common interest development with knowledge of its owners association’s discretionary power accepts ‘the risk that the power may be used in a way that benefits the commonality but harms the individual.’ ” (Id., at p. 374, quoting Natelson, Consent, Coercion, and “Reasonableness” in Private Law: The Special Case of the Property Owners Association(1990) 51 Ohio State L.J. 41, 67.) A prospective homeowner who purchases property in a common interest development should be aware that new rules and regulations may be adopted by the homeowners association either through the board’s rulemaking power or through the association’s amendment powers. (See, e.g., Randolph, Changing the Rules: Should Courts Limit the Power of Common Interest Communities to Alter Unit Owners’ Privileges in the Face of Vested Expectations?(1998) 38 Santa Clara L. Rev. 1081, 1126 [“There is no basis to argue that purchasers of units within common interest communities have an expectation that there will be no changes at all.”].)
Finally, section 1355(b)’s legislative history supports the conclusion that all homeowners are bound by amendments adopted and recorded subsequent to purchase. (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 736 [court “may observe that available legislative history buttresses a plain language construction”].) Subdivision (b) of section 1355 was not part of the bill enacting the Davis-Stirling Act, but was added three years later in 1988. (Stats. 1988, ch. 1409, § 1, p. 4776 [Assem. Bill No. 4426].)[FN. 5] An enrolled bill report from the Department of Real Estate states that “[m]embers of a homeowners’ association . . . should not forever be saddled with provisions they desire to change.” (Cal. Dept. of Real Estate, Enrolled Bill Rep. on Assem. Bill No. 4426 (1987-1988 Reg. Sess.) Aug. 29, 1988, p. 1.) Significantly, the report recommended approval of Assembly Bill No. 4426, despite acknowledging that current homeowners may have relied on the restrictions in place at the time they made their purchase, stating: “The failure to include a provision for amendment may indicate an intentional omission. Additionally, some changes may provide for inconsistent uses which were not previously permissible. Many owners may have acquired [86] their interest in the subdivision because of such a restriction limiting use. To permit an amendment would affect their reasonable expectations.” (Enrolled Bill Rep. on Assem. Bill No. 4426, supra, p. 2.) The Legislature was thus aware that amendments could affect settled or reasonable expectations of some homeowners, but it did not limit the language of section 1355(b) to exempt those homeowners from subdivision (b)’s operation. Tellingly, nothing in the text of section 1355(b) indicates the Legislature intended only subsequent purchasers or homeowners who voted for an amendment to be bound by a use restriction so enacted.
[10] Section 1355(b)’s express language and the limited legislative history compel the conclusion that all homeowners are bound by amendments made to a declaration pursuant to that section. Accordingly, we conclude that all homeowners are subject to use restrictions contained in amended declarations irrespective of when the amendment was passed.
B.
To enforce the no-pet restriction in the Amended Declaration, the Association sought injunctive relief under section 1354, subdivision (a) (hereafter section 1354(a)), which provides in relevant part: “The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable.” [FN. 6] Terifaj contends that even if subsequently enacted use restrictions promulgated pursuant to section 1355(b) and recorded after a homeowner has purchased property in the development are binding on those homeowners, equitable relief under section 1354(a) is nonetheless unavailable to the homeowners association to enforce such restrictions.
Equitable relief, maintains Terifaj, may not be granted under section 1354(a) in this case because that section requires that a use restriction constitute an equitable servitude in order to be enforceable through injunctive relief. [FN. 7] She cites our decision in Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345 for the applicable California law on equitable servitudes, which she contends is [87] incorporated in section 1354(a). She maintains the no-pet restriction in this case did not meet the requirements of equitable servitudes, in part, because it was not contained in a document recorded prior to her purchase of a unit in the development, and she did not have notice of the restriction when she purchased the property.
The Association counters that section 1354(a) applies to all restrictions and covenants in the development’s recorded declaration, original or amended, and relies primarily on the Court of Appeal’s conclusion that section 1354(a) facially applies to any declaration. The Association contends, and the Court of Appeal concluded, that use restrictions in amended declarations are equitable servitudes because section 1354(a) makes no distinction between restrictions contained in the original declaration and those added to the declaration through amendment. [11] We agree with the Association that section 1354(a) facially applies to all covenants and restrictions in the declaration, irrespective of when such covenants and restrictions were incorporated into the declaration.
The text of section 1354(a) belies Terifaj’s contention that covenants and restrictions must meet the common law requirements of equitable servitudes before they may be enforced against a current homeowner. [12] That section does not provide that covenants and restrictions are enforceable only if they meet the common law requirements of equitable servitudes, but clearly provides that covenants and restrictions in the declaration “shall be enforceable equitable servitudes, unless unreasonable” and shall bind all owners. (§ 1354(a), italics added.) This language could mean one of two things, both of which undermine Terifaj’s contention. Such restrictions are deemed to be equitable servitudes notwithstanding their failure to meet the technical requirements of equitable servitudes; that is, the Legislature has made such restrictions enforceable equitable servitudes by virtue of their inclusion in the declaration. Or, such restrictions may simply be enforceable in the same manner as equitable servitudes, with equitable remedies available to the Association, including injunctive relief. Either reading precludes the conclusion that the Legislature intended to incorporate the technical requirements of equitable servitudes into the statute. This interpretation appears compelled by the observation that accepting Terifaj’s position would, in effect, nullify the amendment provisions in the Davis-Stirling Act because homeowners could argue, as does Terifaj here, that they did not have notice of the particular use restriction enacted pursuant to those provisions. A homeowners association, thus, would be unable to seek injunctive relief to compel a complaining homeowner to comply with duly promulgated restrictions pursuant to section 1355(b). We do not think the Legislature intended such an anomalous result.
[13] We therefore agree with the Court of Appeal that section 1354(a) governs enforcement of an amendment to a declaration because that section [88] does not distinguish between an original and an amended declaration. The Legislature, by using expansive language in section 1354(a), intended all covenants and restrictions in the declaration to be enforceable against all homeowners under that provision. Only if the covenant or restriction in question is unreasonable will it be unenforceable under section 1354(a).
Accordingly, we conclude that section 1354(a) applies to enforcement actions relating not only to the covenants and restrictions in the original declaration, but also covenants and restrictions in any declaration. [FN. 8] We are left then with the issue whether the deferential Nahrstedt standard of presumptive reasonableness applies to use restrictions adopted and recorded after a challenging homeowner has purchased his or her individual interest.
C.
[14] We interpreted section 1354(a) in Nahrstedt, supra, 8 Cal.4th 361, and held, pursuant to principles distilled from various authorities and the text of section 1354(a), that covenants and restrictions in recorded declarations of common interest developments are presumptively reasonable (Nahrstedt, supra, at p. 380), and are enforceable “unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit” (id. at p. 382).
In articulating the judicial standard of review to be applied to such restrictions, we relied on the language of section 1354(a) and noted that the prior version of section 1354(a) provided that covenants and restrictions in recorded declarations ” ‘shall be enforceable equitable servitudes where reasonable‘ ” (Nahrstedt, supra, 8 Cal.4th at p. 380; former § 1355, Stats. 1963, ch. 860, § 3, p. 2092), and that the Legislature’s use of the double negative “unless unreasonable” in the current version of the statute “cloaked use restrictions contained in a condominium development’s recorded declaration with a presumption of reasonableness by shifting the burden of proving otherwise to the party challenging the use restriction.” (Nahrstedt, supra, 8 Cal.4th at p. 380.)[89]
The Association contends Nahrstedt’s deferential standard applies to subsequently adopted and recorded use restrictions incorporated into a development’s declaration. Terifaj disagrees, emphasizing that our conclusion in Nahrstedt was based on the fact that the use restriction in that case was contained in a declaration recorded prior to the homeowner’s purchase, and relies on our reasoning that “giving deference to use restrictions contained in a condominium project’s originating documents protects the general expectations of condominium owners ‘that restrictions in place at the time they purchase their units will be enforceable.’ (Note, Judicial Review of Condominium Rulemaking [(1981)] 94 Harv. L. Rev. 647, 653; Ellickson, Cities and Homeowners’ Associations(1982) 130 U.Pa. L.Rev. 1519, 1526-1527 [stating that association members ‘unanimously consent to the provisions in the association’s original documents’ and courts therefore should not scrutinize such documents for ‘reasonableness.’].)” (Nahrstedt, supra, 8 Cal.4th at p. 377.)
In Nahrstedt, supra, 8 Cal.4th 361, the homeowner, who had three indoor cats, sought to prevent the condominium homeowners association from enforcing a no-pet restriction against her because, she contended, her cats did not make noise and were not a nuisance (Id. at p. 367), and she had been unaware of the restriction when she purchased her unit (Id. at p. 369). Applying the deferential standard, we held the no-pet restriction was enforceable because the homeowner failed to meet the burden placed on her, as the party challenging the restriction, to show that the restriction was “unreasonable.” (Id. at p. 389.)
Unlike in this case, Nahrstedt involved a pet restriction contained in a development’s originating declaration that was recorded prior to the challenging homeowner’s purchase, a fact we emphasized throughout our discussion. Because of that factual difference, much of reasoning in that decision is not necessarily relevant to the resolution of this case. However, Nahrstedt does contain reasoning that arguably supports the conclusion that subsequently enacted and recorded use restrictions should receive greater judicial scrutiny. We observed in Nahrstedt that other jurisdictions, “lacking . . . legislative guidance,” applied some form of reasonableness analysis to use restrictions in common interest developments. Significantly, we noted that some courts applied “the ‘reasonableness’ standard only to those restrictions adopted by majority vote of the homeowners or enacted under the rulemaking power of an association’s governing board, and would not apply this test to restrictions included in a planned development project’s recorded declaration or master deed.” (Nahrstedt, supra, 8 Cal.4th at p. 376.)[90]
We discussed, in particular, Hidden Harbour Estates v. Basso (Fla.Dist.Ct.App. 1981) 393 So.2d 637 (Basso), in which a Florida appellate court delineated two categories of restrictions — those found in the development’s declaration and those later promulgated by an association’s board of directors. Restrictions found in the development’s declaration are “clothed with a very strong presumption of validity which arises from the fact that each individual unit owner purchases his unit knowing of and accepting the restrictions to be imposed,” while restrictions in the second category are subjected to a reasonableness analysis. (Id. at pp. 639-640; Nahrstedt, supra, at pp. 376-377.)Basso imposed a reasonableness analysis to rules promulgated by a board of directors or decisions by the board denying a certain use when the decision falls within the board’s authority, explaining the reason for the more stringent standard is “to somewhat fetter the discretion of the board of directors.” (Basso, supra, at p. 640.) While the Basso court spoke of restrictions in the declaration, without distinguishing the original declaration from restrictions subsequently adopted through amendment, the reference to “each individual unit owner” purchasing with knowledge “of and accepting the restrictions to be imposed” (Id. at p. 639), makes clear that the court was referring to the founding declaration or one in existence at the time of purchase.
We also discussed Noble v. Murphy (Mass.App.Ct. 1993) 612 N.E.2d 266. In that case, the original recorded bylaws of a condominium development incorporated the development’s rules and regulations, which included a no-pet rule. (Id. at p. 270.) In the course of upholding the pet restriction, which had been added to the recorded bylaws prior to the challenging homeowner’s purchase of a unit, the court stated that “[a] condominium use restriction appearing in originating documents which predate the purchase of individual units may be subject to even more liberal review than if promulgated after units have been individually acquired.” (Ibid.; Nahrstedt, supra,8 Cal.4th at p. 377.)
Based on this discussion and because we explained that our interpretation of section 1354(a) was consistent with “judicial decisions in other jurisdictions that have applied a presumption of validity to the recorded land use restrictions of a common interest development” (Nahrstedt, supra, 8 Cal.4th at p. 382, citing Noble and Basso), we have acknowledged that “some of our reasoning arguably suggested a distinction between originating [covenants and restrictions] and subsequently promulgated use restrictions.” (Lamden v. La Jolla Shores Clubdominium Homeowners Association (1999) 21 Cal.4th 249, 264.) Our discussion of Basso and [91] Noble suggests that we would not necessarily apply the same deferential standard to subsequently enacted use restrictions. [15] For the reasons that follow, however, we conclude that subsequently promulgated and recorded use restrictions are entitled to the same judicial deference accorded covenants and restrictions in original declarations, that is, they are presumptively valid, and the burden of proving otherwise rests upon the challenging homeowner.
Although we discussed and seemingly approved of the distinction drawn in Basso between restrictions in the original declaration and those subsequently adopted, we did not hold or state in Nahrstedt that we were adopting such an approach. Instead we prefaced our discussion of Bassoand Noble with the caveat that those decisions were from “states lacking . . . legislative guidance.” (Nahrstedt, supra, 8 Cal.4th at p. 376.) We, however, have been provided guidance by our Legislature through the Davis-Stirling Act, and as the Court of Appeal observed, the statutory language is “controlling.” Section 1354(a) unambiguously refers to the “declaration” and provides that the covenants and restrictions in the declaration are equitable servitudes that are enforceable unless unreasonable. It further provides that the covenants and restrictions shall bind all owners of separate interests. (§ 1354(a).) We have previously construed the phrase “unless unreasonable” in section 1354(a) to mean that restrictions in a declaration are enforceable unless they are arbitrary, violate public policy, or impose a burden on the land that outweighs any benefits. (Nahrstedt, supra, 8 Cal.4th at p. 389.) This interpretation was governed by the Legislature’s use of the double negative “unless unreasonable” in place of the previous phrase “where reasonable.” (Id. at p. 380.)
While our interpretation was consistent with Basso, Basso was not the primary basis for our holding — the statutory language was. As we concluded, “[i]n section 1354, the Legislature has specifically addressed the subject of the enforcement of use restrictions that, like the one in this case prohibiting the keeping of certain animals, are recorded in the declaration of a condominium or other common interest development. The Legislature has mandated judicial enforcement of those restrictions unless they are shown to be unreasonable when applied to the development as a whole.” (Nahrstedt, supra, 8 Cal.4th at pp. 388-389, italics added.)
Nor did Nahrstedt imply that we would apply a more stringent standard, such as objective reasonableness, to restrictions in recorded amended declarations, as opposed to unrecorded use restrictions promulgated by a board of directors of a homeowners association or other unrecorded rules and regulations. (E.g., Lamden v. La Jolla Shores Clubdominium Homeowners Association, supra, 21 Cal.4th at p. 264; Rancho Santa Fe Association v. Dolan-King(2004) 115 Cal.App.4th 28, 38 & fn. 2.)[92]
Moreover, there is no language in section 1355(b) that indicates a different standard for enforcing its provisions should, or may, apply. (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 349 [“It is our task to construe, not to amend, the statute.”].) Once the declaration is amended and recorded, section 1354(a) governs its enforcement, and hence, amendments are enforceable unless unreasonable. Had the Legislature intended a different standard to apply to subsequently adopted and recorded use restrictions than apply to restrictions in the original declaration, it would have so provided.
The language of another amendment provision in the Davis-Stirling Act — section 1356, subdivision (c)(5) — demonstrates that the Legislature, if it wished, could have provided that an amendment must be reasonable to be enforceable against a current homeowner under section 1354(a). When the declaration itself provides that it may be amended only with a supermajority vote, section 1356 allows a homeowners association or any homeowner in a common interest development to petition the court for a reduction of the required percentage of votes necessary for the passage of an amendment. (§ 1356, subd. (a).) Pursuant to section 1356, the court may reduce the required minimum percentage of votes needed to amend the declaration, provided a majority of the homeowners approve the amendment and the petition complies with the requirements set out in subdivision (a)(1) through (5). (§ 1356, subd. (a).) Under section 1356, subdivision (c), it is within the court’s discretion to approve or deny such a petition, but in order to grant the petition, the court must find, inter alia, that “[t]he amendment is reasonable.” (§ 1356, subd. (c)(5).) [FN. 9]
No similar limitation was inserted in the text of section 1355(b). Section 1355(b) enumerates the criteria necessary for the amendment of a declaration when the declaration is silent on whether it may be amended, and once the [93] requirements are met, including recordation, the amendment becomes effective and binds all homeowners. Given that section 1356 was added to the Davis-Stirling Act before section 1355(b), it is unlikely the omission of a reasonableness standard was an oversight. This point is buttressed by the fact that section 1355, subdivision (a), which provides for amendment of the declaration pursuant to either the amendment provisions in the declaration itself, or pursuant to other amendment provisions in the Davis-Stirling Act, was enacted as part of the original Act, yet it also does not contain a reasonableness element as does section 1356.
D.
[16] Applying the deferential Nahrstedt standard of review to the Amended Declaration in this case, we hold, as we did in Nahrstedt, that the recorded restriction prohibiting pets is not unreasonable as a matter of law. [FN. 10] Terifaj, however, contends that a subsequent amendment to the Davis-Stirling Act, providing in relevant part that “no governing documents shall prohibit the owner of a separate interest . . . from keeping at least one pet” (§ 1360.5, added by Stats. 2000, ch. 551, § 2 [Assem. Bill No. 860]), calls into question Nahrstedt‘s ultimate holding that the no-pet restriction in that case was not unreasonable. Section 1360.5, however, does not aid Terifaj. As the Court of Appeal observed, subdivision (e) of section 1360.5 clearly provides that its provisions “shall only apply to governing documents entered into, amended, or otherwise modified on or after [January 1, 2001].” The Declaration in this case was amended and recorded in January 2000, a year prior to section 1360.5’s operative date. To allow section 1360.5 to undermine Nahrstedt‘s holding in this case would essentially render section 1360.5’s operative date meaningless. Any homeowner could challenge a recorded no-pet restriction on the basis of section 1360.5 without regard to its effective date.
Moreover, the fact that the Legislature has passed section 1360.5 does not undermine our conclusion in Nahrstedt that a restriction prohibiting pets may be reasonable. [17] By enacting section 1360.5, the Legislature did not declare that prohibiting pets is unreasonable, but merely demonstrated a legislative preference for allowing homeowners in common interest developments to keep at least one pet. As we observed in Nahrstedt, prohibiting pets is “rationally related to health, sanitation and noise concerns legitimately held by residents” of common interest developments. (Nahrstedt, supra, 8 Cal.4th at p. 386.) While Nahrstedt involved a “high-density” project, the concerns expressed in that case apply equally to the present case, which involves a [94] smaller development. Therefore, nothing in section 1360.5 undermines Nahrstedt‘s holding that a no-pet restriction may be reasonable given the characteristics of common interest developments such as condominium projects. [FN. 11]
E.
Terifaj contends that even if the recorded no-pet restriction is an enforceable equitable servitude, the trial court erred in awarding the Association attorney fees for prosecuting the original complaint, which was based, according to Terifaj, on the unrecorded and unenforceable no-pet rule. With respect to the original complaint, she contends she was the prevailing party. We conclude the trial court did not abuse its discretion in determining that the Association was the prevailing party (Heather Farms Homeowners Association v. Robinson (1994) 21 Cal.App.4th 1568, 1574) and awarding the Association $15,000 in attorney fees. On a “practical level” (ibid.), the Association “achieved its main litigation objective” (Castro v. Superior Court (2004) 116 Cal.App.4th 1010, 1020) in ultimately securing an injunction to enjoin Terifaj from bringing her dog onto the development. Moreover, Terifaj fails to provide evidence that the trial court actually awarded the Association attorney fees for prosecuting the original complaint. The record discloses the Association sought $19,787 in attorney fees, more than the trial court awarded. Presumably, the court took into account Terifaj’s argument regarding the original complaint. In any event, Terifaj fails to establish that the trial court abused its discretion in awarding the Association $15,000 in attorney fees. (See Rancho Santa Fe Association v. Dolan-King, supra, 115 Cal.App.4th at p. 46.)[95]
III. DISPOSITION
For the foregoing reasons, we affirm the judgment of the Court of Appeal.
George, C. J., Kennard, J., Baxter, J., Werdegar, J., Chin, J., and Brown, J., concurred.
FN 1. All further statutory references are to the Civil Code.
FN 2. Although Villa De Las Palmas was created prior to the enactment of the Davis-Stirling Act, the Act applies to common interest developments in existence prior to its enactment.(§ 1352;Nahrstedt, supra, 8 Cal.4th at p. 378, fn. 8.)
FN 3. In addition to section 1355(b), the Davis-Stirling Act provides several methods for amending the declaration. Section 1355, subdivision (a), provides that a declaration may be amended pursuant to its own amendment provisions or pursuant to other provisions of the Act; section 1356 allows a homeowners association to petition the court for approval of an amendment if the declaration provides for a larger majority than the association is able to muster, provided at least 50 percent of the owners vote in favor of the proposed amendment; section 1355.5 provides for the deletion of certain developer-oriented provisions; section 1357 provides for the extension of a termination date set forth in a declaration.
FN 4. Section 1355(b) provides in full: “Except to the extent that a declaration provides by its express terms that it is not amendable, in whole or in part, a declaration which fails to include provisions permitting its amendment at all times during its existence may be amended at any time. For purposes of this subdivision, an amendment is only effective after (1) the proposed amendment has been distributed to all of the owners of separate interests in the common interest development by first-class mail postage prepaid or personal delivery not less than 15 days and not more than 60 days prior to any approval being solicited; (2) the approval of owners representing more than 50 percent, or any higher percentage required by the declaration for the approval of an amendment to the declaration, of the separate interests in the common interest development has been given, and that fact has been certified in a writing, executed and acknowledged by an officer of the association; and (3) the amendment has been recorded in each county in which a portion of the common interest development is located. A copy of any amendment adopted pursuant to this subdivision shall be distributed by first-class mail postage prepaid or personal delivery to all of the owners of separate interest immediately upon its recordation.”
FN 5. Section 1355(b) initially contained a sunset provision with a termination date of January 1, 1990. In 1993, the Legislature amended the subdivision by deleting the sunset provision. (§ 1355(b), as amended by Stats. 1993, ch. 21, § 1, pp. 134-135.) Section 1355(b), therefore, was inoperative between January 1, 1990 and January 1, 1994.
FN 6. In full, section 1354(a), provides: “The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of separate interests in the development. Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both.”
FN 7. Section 1354(a) is found in article 2 of the Davis-Stirling Act, which is entitled “Enforcement.”
FN 8. Because the Association amended the Declaration pursuant to section 1355(b) and filed an amended complaint based on the newly enacted and recorded no-pet restriction, we need not decide in this case whether the Association would have been entitled to equitable relief based on Terifaj’s violation of the unrecorded no-pet rule passed pursuant to the 1962 Declaration.
FN 9. Section 1356, subdivision (c), provides in full: “The court may, but shall not be required to, grant the petition if it finds all of the following: [] (1) The petitioner has given not less than 15 days written notice of the court hearing to all members of the association, to any mortgagee of a mortgage or beneficiary of a deed of trust who is entitled to notice under the terms of the declaration, and to the city, county, or city and county in which the common interest development is located that is entitled to notice under the terms of the declaration. [] (2) Balloting on the proposed amendment was conducted in accordance with all applicable provisions of the governing documents. [] (3) A reasonably diligent effort was made to permit all eligible members to vote on the proposed amendment. [] (4) Owners having more than 50 percent of the votes, in a single class voting structure, voted in favor of the amendment. In a voting structure with more than one class, where the declaration requires a majority of more than one class to vote in favor of the amendment, owners having more than 50 percent of the votes of each class required by the declaration to vote in favor of the amendment voted in favor of the amendment. [] (5) The amendment is reasonable. [] (6) Granting the petition is not improper for any reason stated in subdivision (e).”
FN 10. We do not quarrel with Terifaj about the benefits of pet ownership, but that is not the issue in this case.The primary issue in this case is whether subsequently enacted and recorded use restrictions may be enforced against a current homeowner.
FN 11. Terifaj, supported by the California Council of the Blind as amicus curiae, contends that the injunction issued in this case is overbroad and infringes on her civil rights because she is prohibited from inviting to her unit guests who require guide dogs or leasing her unit to an individual requiring a guide dog. This contention is hypothetical since there is no indication the Association will not permit blind persons to use guide dogs on the property. Furthermore, despite Terifaj’s implication to the contrary (“the Court of Appeal reasons that the issue of overbreadth does not apply”), the Court of Appeal did not mention, much less address this issue, and Terifaj did not seek rehearing in the Court of Appeal to address this alleged omission. We, therefore, decline to address her contention here. (Cal. Rules of Court, rule 28(c)(2).
Fourth La Costa Condominium Owners Association v. Seith
[CC&R Amendments; Real Estate Signs] Court upheld lender consent requirement for CC&R amendment, rather than lender vote; Real estate signs may be regulated for aesthetic purposes and may be prohibited from being posted in HOA common areas.
OPINION
MCCONNELL, P. J.-
Barbara Seith appeals an order the trial court entered that reduced the percentage of votes necessary to amend the Fourth La Costa Condominium Owners Association’s (Owners Association) Declaration of Covenants, Conditions and Restrictions (CC&R’s) (Civ. Code, [1] 1356) and Bylaws (Corp. Code, 7515). Seith challenges the order on the grounds the underlying vote was invalid because it was by mail ballot, the ballot was not secret, the Owners Association made an insufficient effort to permit all owners to vote, and there was insufficient evidence of lender acquiescence; the court exceeded its statutory authority and implied an improper standard; certain provisions of the amendment are unreasonable; and Civil Code section 1356 is unconstitutional as it impairs the obligation of contracts. We affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND
The 48-unit Fourth La Costa condominium development was governed by CC&R’s and Bylaws recorded in 1969. Both documents provided they may be amended only by an affirmative vote of not less than 75 percent of the owners.
In 2004 the Owners Association decided the CC&R’s and Bylaws should be amended because some provisions were superseded by changes in the law, other provisions were ambiguous and had caused confusion, and provisions pertaining to developer rights and obligations no longer applied. In an August 29, 2005 letter to owners, the Owners Association asked for an affirmative vote on the First Restated CC&R’s, which contain dozens of new provisions and the amendment of numerous original provisions, and on amended Bylaws. The letter notified owners of the 75 percent vote requirement, and of an October 1 informational meeting. It requested the return of ballots by October 7.
In a September 2005 newsletter, the Owners Association reminded owners to vote. Many owners did not return their ballots, and on October 11 the Owners Association sent a memorandum and another ballot to each owner who had not voted, and it extended the deadline for voting to October 21.
In February 2006 the Owners Association filed a petition in the superior court for an order under section 1356 to reduce the percentage of affirmative [569] votes needed to amend the CC&R’s. The petition stated 25 owners voted in favor of the amendment, 11 owners voted against it, and 12 owners did not return their ballots. The petition prayed that the First Restated CC&R’s “be ordered approved based upon the number of affirmative votes actually cast constituting at least a majority of owners.”
In July 2006 the Owners Association filed a supplemental petition under Corporations Code section 7515 to reduce the percentage of affirmative votes necessary to approve the Bylaws.
Seith owns and leases out two condominiums at Fourth La Costa. She filed a written objection to the petitions on various grounds, including that the proposed amendments imposed “onerous terms and burdens on the leasing of units.”
In a tentative ruling, the court granted the petitions. After an August 16, 2006 hearing, the court took the matter under submission. On August 21 it confirmed its tentative ruling.
DISCUSSION [2]
I. Validity of Vote
A1
[1] “[S]ection 1356, part of the Davis-Stirling Common Interest Development Act [Davis-Stirling Act] . . . , provides that a homeowners association, or any member, may petition the superior court for a reduction in the percentage of affirmative votes required to amend the CC&R’s if they require approval by ‘owners having more than 50 percent of the votes in the association . . . .’ [Citation.] The court may, but need not, grant the petition if it finds all of the following: [570] Notice was properly given; the balloting was properly conducted [in accordance with all applicable provisions of the governing documents]; reasonable efforts were made to permit eligible members to vote; ‘[o]wners having more than 50 percent of the votes, in a single class voting structure, voted in favor of the amendment’; and ‘[t]he amendment is reasonable.’ ” (Peak Investments v. South Peak Homeowners Assn., Inc. (2006) 140 Cal.App.4th 1363, 1366-1367, fn. omitted.)
“Viewed objectively, the purpose of . . . section 1356 is to give a property owners’ association the ability to amend its governing documents when, because of voter apathy or other reasons, important amendments cannot be approved by the normal procedures authorized by the declaration. [Citation.] In essence, it provides the association with a safety valve for those situations where the need for a supermajority vote would hamstring the association.” (Blue Lagoon Community Assn. v. Mitchell (1997) 55 Cal.App.4th 472, 477.)
Because section 1356 gives the trial court broad discretion in ruling on a petition ( 1356, subd. (c)), we review its ruling for abuse of discretion. “Discretion is abused whenever, in its exercise, the court exceeds the bounds of reason, all of the circumstances before it being considered.” (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.)
2
Seith contends the vote here was not “conducted in accordance with all applicable provisions of the governing documents,” as required by section 1356, subdivision (c)(2), because it was by mail ballots. She concedes, however, that there is statutory authority for mail ballots. Corporations Code section 7513, subdivision (a) provides that “unless prohibited in the articles or bylaws, any action which may be taken at any regular or special meeting of members may be taken without a meeting if the corporation distributes a written ballot to every member entitled to vote on the matter.”
Seith cites the Bylaws as stating they “may only be amended ‘at a regular or special meeting of members.’ ” The Bylaws, however, actually provide they “may be amended, at a regular or special meeting of the members.” [3] (Italics added.) Seith also cites the CC&R’s requirement there must be an affirmative “vote” of at least 75 percent of owners. A vote, however, may be made at a meeting or by mail ballots. [571]
Seith ultimately acknowledges the governing documents did not prohibit mail ballots. She asserts, however, that since the governing documents did not expressly authorize mail ballots, and the authority for their use was purely statutory, the vote was not in accordance with the governing documents and the Owners Association was thus precluded from obtaining relief from the supermajority vote requirement under section 1356.
[2] The interpretation of statutes presents questions of law we review independently. (Board of Retirement v. Lewis (1990) 217 Cal.App.3d 956, 964.) Seith cites no authority that supports her position, and we find it unpersuasive. The Legislature intends to allow mail ballots unless they are expressly prohibited by the governing documents, and their use would run afoul of section 1356, subdivision (c)(2) only if the governing documents prohibited their use.
3
Additionally, Seith cites Corporations Code section 7513, subdivision (b), which provides that “[a]pproval by written ballot pursuant to this section shall be valid only when the number of votes cast by ballot . . . equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals equals or exceeds the number of votes that would be required to approve at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.”
Seith asserts Corporations Code section 7513, subdivision (b) and Civil Code section 1356 have “equal legislative dignity, and neither prevails over the other.” She asserts section 1356 “permits the court to ignore supermajority requirements of the association’s CC&R’s, but it does [not] permit the court to ignore express provisions of other statutes. By granting the petition under [section] 1356 where the vote was only valid because of the provisions of [Corporations Code section 7513, subdivision (a)], the court disregarded the express language of [Corporations Code section 7513, subdivision (b)], which here mandates 75 [percent] owner approval.” In other words, Seith again takes the position that when mail ballots are used an association may never petition under Civil Code section 1356 for relief from a supermajority vote requirement.
[3] We disagree. As the court explained in its order, “the relief requested in the petition is exactly the type for which judicial intervention under Civil Code [section] 1356 is deemed proper as only 69 [percent] of the owners have responded despite the efforts of the [Owners] Association to increase participation.” There is no suggestion the Legislature intended to limit the reach of section 1356 to votes taken at a regular or special meeting, and we [572] see no reason for such a distinction. If an election is held at a meeting, the governing documents may be amended only if the percentage of affirmative votes required by the governing documents is cast, or the association obtains relief under section 1356. As there is no evidence of legislative intent to the contrary, the same rule should apply to votes by mail ballot.
B
Alternatively, Seith contends the vote violated section 1355, subdivision (b), under which an amendment to CC&R’s is effective only after “the proposed amendment has been distributed to all of the owners of separate interests in the common interest development by first-class mail postage prepaid or personal delivery not less than 15 days and not more than 60 days prior to any approval being solicited.” Seith complains that the Owners Association distributed the proposed amendment and ballots at the same time, and thus gave owners an unreasonably short time within which to evaluate the issues and mount an opposition.
Subdivision (b) of section 1355, however, is inapplicable. Subdivision (a) of section 1355 provides the “declaration may be amended pursuant to the governing documents or this title [title 6 of the Civil Code, “Common Interest Developments”]. Except as provided in Section 1356, an amendment is effective after . . . the approval of the percentage of owners required by the governing documents has been given.” (Italics added.) The Owners Association proceeded under its governing documents, not section 1355, and when a supermajority affirmative vote was not cast, it proceeded under section 1356.
Seith asserts the vote here was pursuant to title 6 of the Civil Code, and not the governing documents, because the vote was by mail ballots instead and a supermajority affirmative vote was not cast. As discussed, however, Corporations Code section 7513, subdivision (a) authorized the mail ballots. Further, the lack of a supermajority affirmative vote does not mean the vote was not conducted under the governing documents within the meaning of Civil Code section 1356, subdivision (c)(2). Rather, the lack of a supermajority affirmative vote made a petition for relief under section 1356 appropriate.
C
Further, Seith contends the vote was invalid because it was not by secret ballot. She cites Civil Code section 1363.03, subdivision (b), which provides that “[n]otwithstanding any other law or provision of the governing documents, elections regarding . . . amendments to the governing documents . . . shall be held [573] by secret ballot in accordance with the procedures set forth in this section.” The statute is inapplicable, however, because it was not effective until July 1, 2006, nearly nine months after the vote here. Contrary to Seith’s view, the dates of filing of the Owners Association’s petitions and the trial court’s order are immaterial. At the relevant time, the Owners Association was not required to conduct the vote by secret ballot. Indeed, Seith concedes the legislative history shows that before the enactment of section 1363.03, ballots in common interest developments were not required by law to be secret.
D
Seith also contends the vote is invalid because there is insufficient evidence of acquiescence by lenders. The original CC&R’s provided that in addition to a supermajority vote of owners, they may be amended “provided written notice of the proposed amendment is sent to all lenders and a written consent is obtained of seventy-five percent . . . of the lenders holding the beneficial interests in any Mortgages or Trust Deeds of record as valid liens against said project or any portion thereof, provided, however, that the lender shall not unreasonably withhold their consents.”
The Owners Association’s original petition averred that through its legal counsel it “mailed letters and ballots to the holders of the Mortgages as required [by] . . . the CC&Rs. These letters were sent via Certified Mail, Return Receipt Requested (‘RRR’) and the letter informed the Mortgagees that the signature on the RRR would be deemed consent of the proposed [amended] CC&Rs, unless a ballot was returned within thirty . . . days. . . . As of February 8, 2006, over 75 [percent] of the Mortgagees had signed the RRR. One . . . lender indicated that it could not consent because it did not have a copy of the original CC&Rs.” The petition included a copy of the letter and the ballot sent the lenders.
As the court noted, the CC&R’s required an affirmative vote of owners, but only written consent by lenders. The court explained “[t]his would tend to indicate that the CC&R’s, as originally drafted, contemplated a distinction between the forms of approval required from each group, with the approval from the latter group being more relaxed in form. The CC[&]R’s did not specify the method by which the consent may be obtained. [The Owners Association’s] method of assuring receipt of the proposed changes by the lenders and thereafter providing them with 30 days within which to reject the changes is as good as any.” We agree with the court’s assessment. [574]
E
[4] Seith also contends the Owners Association violated section 1356, subdivision (c)(3), which requires an association to make a “reasonably diligent effort . . . to permit all eligible members to vote on the proposed amendment.”
In support of its petitions, the Owners Association submitted the declaration of Ashley Rosas, a management consultant who oversees its day-to-day operations. The declaration stated the Owners Association maintains a list of all current record owners, and Rosas’s staff used the list to mail the proposed CC&R’s and ballots to owners on August 29, 2005. The declaration also stated that in mid-September a reminder memorandum was sent to owners who did not respond, another reminder was included in the Owner Association’s September newsletter, on October 1 it conducted a special meeting regarding the proposed amendment, and on October 11 another reminder and ballots were sent to owners who had still not responded.
Seith submits that “further solicitation [of owners who did not vote] was likely [to lead] to outright defeat,” and thus the Owners Association had “no incentive to seek more votes.” Seith submitted no evidence pertaining to the Owners Association’s motives, and her position is mere speculation. Perhaps, as Seith asserts, it would not have been onerous for the Owners Association to try to reach by telephone the 12 owners who did not vote. We conclude, however, that its efforts were sufficient to satisfy section 1356, subdivision (c)(3). The vote was valid.
II. Trial Court’s Statutory Authority
A
Next, Seith contends the trial court exceeded the authority of section 1356, subdivision (d), which provides: “If the court makes the findings required by subdivision (c), any order issued pursuant to this section may confirm the amendment as being validly approved on the basis of the affirmative votes actually received during the balloting period or the order may dispense with any requirement relating to quorums or to the number or percentage of votes needed for approval of the amendment that would otherwise exist under the governing documents.”
The proposed amendment to the CC&R’s changes the supermajority vote for their amendment to a majority vote. The original CC&R’s, however, [575] provided they “shall not be amended to allow amendments by vote of less than seventy-five percent . . . of the Owners.” Seith asserts the original CC&R’s may never be amended to allow a majority vote.
[5] The issue is one of contract interpretation. “The same rules that apply to interpretation of contracts apply to the interpretation of CC&R’s.” (Chee v. Amanda Goldt Property Management (2006) 143 Cal.App.4th 1360, 1377.) ” ‘A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.’ [Citation.] ‘Where the language of a contract is clear and not absurd, it will be followed.’ ” (Templeton Development Corp. v. Superior Court (2006) 144 Cal.App.4th 1073, 1085; Civ. Code, 1638 [ “The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity]”.)
At the trial court, the Owners Association argued the original CC&R’s unreasonably restricted it from amending the document, and requiring it to obtain the approval of 75 percent of owners “for each and every amendment, stagnates [it] from being able to update the CC&Rs and to reflect the desires of the community. The fact that the CC&Rs have not been amended since 1969 is proof of the unreasonable hold the current amendment provision has on this community.”
The court found reasonable the provision of the First Restated CC&R’s to allow a majority vote to amend the document, and we agree. It would be rather absurd to allow the governing documents to restrict an association’s ability to amend the document in perpetuity, even if, for instance, 100 percent of the owners preferred a majority vote rather than a supermajority vote. Accordingly, the court did not exceed its authority under section 1356 by approving the majority vote amendment.
B
Seith also contends the court exceeded its authority under section 1357. Under subdivision (a) of section 1357, the Legislature “finds and declares that it is in the public interest to provide a vehicle for extending the term of the declaration if owners having more than 50 percent of [576] the votes in the association choose to do so.” Subdivision (b) of section 1357 provides that a “declaration which specifies a termination date, but which contains no provision for extension of the termination date, may be extended by the approval of owners having more than 50 percent of the votes in the association or any greater percentage specified in the declaration for an amendment thereto. If the approval of owners having more than 50 percent of the votes in the association is required to amend the declaration, the term of the declaration may be extended in accordance with Section 1356.” (Italics added.)
Under subdivision (d) of section 1357, “[n]o single extension of the terms of the declaration made pursuant to this section shall exceed the initial term of the declaration of 20 years, whichever is less. However, more than one extension may occur pursuant to this section.” Here, the original CC&R’s provided for a term of 40 years from the date of recordation, December 9, 1969, but they also provided that after the 40-year period they shall be automatically extended for successive ten-year periods. The First Restated CC&R’s provide they are in effect until December 31, 2055, after which they shall be automatically extended for successive 10-year periods. Seith asserts the extension to 2055 violates subdivision (d) of section 1357.
[6] Section 1357, however, is inapplicable here because the original CC&R’s had an automatic renewal provision, and the statute plainly applies only to CC&R’s that have a termination date and do not provide for an extension. In enacting the statute, the Legislature was concerned that “there are common interest developments that have been created with deed restrictions which do not provide a means for the property owners to extend the term of the declaration. . . . [C]ovenants and restrictions, contained in the declaration, are an appropriate method for protecting the common plan of developments and to provide for a mechanism for financial support for the upkeep of common areas. . . . If declarations terminate prematurely, common interest developments may deteriorate and the housing supply of affordable units could be impacted adversely.” ( 1357, subd. (a).) Had the Legislature intended to limit the extension of any CC&R’s to 20-year periods it could easily have said so.
III. Section 1356’s Reasonableness Standard
Seith contends the trial court violated section 1356, subdivision (c)(5) by not applying a reasonableness standard, and instead applying a deferential standard under Nahrstedt v. Lakeside Village Condominium Assn., Inc. (1994) 8 Cal.4th 361 (Nahrstedt).
In Nahrstedt, our high court interpreted section 1354, subdivision (a), under which recorded CC&R’s are enforceable equitable servitudes “unless unreasonable.” The court held CC&R’s are unreasonable if they are “wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.” (Nahrstedt, supra, 8 Cal.4th at p. 382.) [577] The prior version of the statutory provision (former 1355) stated ” ‘restrictions shall be enforceable equitable servitudes where reasonable,’ ” and the court concluded the shift from “where reasonable” to the double negative “unless unreasonable” signaled the Legislature’s intent to “cloak[] use restrictions contained in a condominium development’s recorded declaration with a presumption of reasonableness by shifting the burden of proving otherwise to the party challenging the use restrictions.” (Nahrstedt, at p. 380, italics added by court; see also Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 79.)
[7] We agree with Seith that since section 1356 pertains to proposed amendments to CC&R’s, rather than recorded CC&R’s, and it does not contain the “unless unreasonable” language of section 1354, there is no presumption of reasonableness under section 1356 and the party petitioning for relief from a supermajority vote requirement has the burden of proving reasonableness. The term “reasonable” in the context of use restrictions has been variously defined as “not arbitrary or capricious” (Ironwood Owners Assn. IX v. Solomon (1986) 178 Cal.App.3d 766, 772; Lamden v. La Jolla Shores Condominium Homeowners Assn. (1999) 21 Cal.4th 249, 266), “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 “fair and nondiscriminatory.” (Laguna Royale Owners Assn. v. Darger (1981) 119 Cal.App.3d 670, 680.)
Here, in discussing 11 specific issues Seith raised, on three instances the court found provisions of the First Restated CC&R’s not “unreasonable.” The order, however, also expressly acknowledges section 1356 imposes a reasonableness requirement, and it states the “[p]etitioner has satisfied the elements of . . . section 1356,” and the court “finds that all of the proposed changes with which the objecting party takes issue are indeed reasonable and that it does not appear that the amendments are for an improper purpose.” (Italics added.) Accordingly, the order establishes the court applied the correct burden of proof and a standard of reasonableness.
[8] Further, when the court properly places the burden of proof on the party petitioning under section 1356, its finding that a proposed amendment is not unreasonable, as opposed to reasonable, is of no real import. As the court explained in Nahrstedt, the differences between the terms “where reasonable” and “unless unreasonable” under section 1354 and its predecessor were germane to the issue of whether there is a presumption of validity and the allocation of burden of proof. A CC&R is unreasonable if it is arbitrary and capricious, violates the law or a fundamental public policy or imposes an [578] undue burden on property, and it is reasonable unless it meets those criteria. (See Miller & Starr, 9 Cal. Real Estate (3d ed. 2007) 25B:13, pp. 25B-42 to 25B-43.) We find no error.
IV. Objections to Specific Provisions
A
Seith complains that Article IV, Section 2(K) of the First Restated CC&R’s eliminates an owner’s right to an assigned parking space in the common area. The original CC&R’s provided that the Owners Association “shall” “assign to each Unit . . . the right to use one . . . parking space contained within the Common Area. . . . The [Owners] Association, however, reserves the right to re-assign and re-allocate said parking spaces in such manner and at such time as it may deem reasonably necessary for the benefit of all of the Owners of all of the Units.” The First Restated CC&R’s have the same language, but use the term “may” instead of “shall” with regard to the assignment of common area parking spaces to units.
At the trial court, the Owners Association explained that when the CC&R’s were originally adopted in 1969, common area parking spaces had not been assigned to the units, but shortly after their adoption parking spaces were assigned to the units and the assignments continue. The Owners Association argued the previous version was outdated because it no longer has any affirmative duty to assign spaces to the units since that task has been completed.
We disagree with Seith’s speculation that under the amendment the Owners Association may take assigned spaces away from units, as it cannot reassign spaces under the First Restated CC&R’s unless reassignment is necessary for the benefit of all owners. Taking spaces away from owners would not benefit them. Although the amended provision could have been drafted more clearly, under the circumstances we find it reasonable.
B1
Article VI, Section 3(A) of the First Restated CC&R’s states: “Except as may be required by legal proceedings or authorized by the Association’s Rules, no commercial signs, billboards, real estate flags or advertising of any [579] kind shall be maintained or permitted on any portion of the Development except for one ‘For Sale’ or ‘For Rent’ sign per Unit, not larger than 18 [inches] by 24 [inches]. The sign must be professionally printed, be maintained in good condition, and may only be posted in the window and may not be posted on the railings of balconies or locations on the buildings. . . . All signs must be removed within three . . . days of close of escrow or lease of the Unit.”
Seith contends the provision violates section 1353.6, which as of January 1, 2004, limits an association’s restrictions on noncommercial signs. The statute provides: “(a) The governing documents . . . may not prohibit posting or displaying of noncommercial signs, posters, flags, or banners on or in an owner’s separate interest, except as required for the protection of public health or safety or if the posting or display would violate a local, state, or federal law. [] (b) For the purposes of this section, a noncommercial sign, poster, flag, or banner may be made of paper, cardboard, cloth, plastic, or fabric, and may be posted or displayed from the yard, window, door, balcony, or outside wall of the separate interest. . . . [] (c) An association may prohibit noncommercial signs and posters that are more than 9 square feet in size and noncommercial flags or banners that are more than 15 square feet in size.”
In enacting the statute, the Legislature intended to provide: ” ‘(a) That homeowners throughout the state shall be able to engage in constitutionally protected free speech traditionally associated with private residential property. [] (b) That owners of a separate interest in a common interest development shall be specifically protected from unreasonable restrictions on this right in the governing documents.’ ” (Historical and Statutory Notes, 8 West’s Ann. Civ. Code (2007 ed.) foll. 1353.6, p. 184.)
In accordance with section 1353.6, Article VI, Section 3(B) of the First Restated CC&R’s does allow the display of noncommercial signs not exceeding nine square feet “from the yard, window, door, balcony, or outside walls of the Units and must be, made of paper, cardboard, cloth, plastic, or fabric.” Seith essentially asserts that for sale and for lease signs should be included within that provision because they are noncommercial, based on a dictionary definition of “commercial” as “engaged in commerce or work intended for commerce.” (Merriam-Webster’s Collegiate Dict. (11th ed. 2006) p. 249, col. 2.) She asserts that a typical owner is not engaged in buying and selling units, and is thus not engaged in commerce.
[9] It is established, however, that signs advertising property for sale or for lease constitute commercial speech as the advertiser’s interest is purely economical. (Linmark Associates, Inc. v. Township of Willingboro (1977) 431 U.S. 85, 92, 98; [580] Kennedy v. Avondale Estates, Ga. (N.D.Ga. 2005) 414 F.Supp.2d 1184, 1198-1199.) “[C]ommercial speech is that which ‘propose[s] a commercial transaction.’ ” (Kennedy v. Avondale, at p. 1198, citing Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc. (1976) 425 U.S. 748, 762.) As section 1353.6 pertains only to noncommercial speech it is inapplicable here.
2
[10] Alternatively, Seith contends that even if for sale and for lease signs are commercial, the restrictions on their size and placement violate section 712, subdivision (a), which provides: “Every provision contained in or otherwise affecting a grant or a fee interest in . . . real property in this state . . . , which purports to prohibit or restrict the right of the property owner . . . to display . . . on the real property, or on real property owned by others with their consent, or both, signs which are reasonably located, in plain view of the public, are of reasonable dimensions and design, and do not adversely affect public safety, . . . and which advertise the property for sale, lease, or exchange, or advertise directions to the property, by the property owner or his or her agent is void as an unreasonable restraint upon the power of alienation.” (Italics added.) A sign may include directions to the property, the owners’ or the agent’s name, address and telephone number, and it is deemed to be of reasonable dimension and design if it complies with a local sign ordinance. ( 712, subd. (c), 713, subd. (a).)
Section 712 applies to the placement of signs on an owner’s “real property.” In a condominium project, however, unit owners ordinarily have no separate interest in the real property. Subdivision (f) of section 1351 provides: “A condominium consists of an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map, or condominium plan . . . . The area within these boundaries may be filled with air, earth, or water, or any combination thereof, and need not be physically attached to land except by easements for access and, if necessary, support. . . . The portion or portions of real property held in undivided interest may be all of the real property, except for the separate interests. . . . An individual condominium within a condominium project may include, in addition, a separate interest in other portions of the real property.”
Further, the balconies, exterior doors and walls of units are also common areas. Section 1351, subdivision (i) provides: “(i) ‘Exclusive use common area’ means a portion of the common areas designated by the declaration for the exclusive use of one or more, but fewer than all, of the owners of the separate interests and which is or will be appurtenant to the separate interest [581] or interests. [] (1) Unless the declaration otherwise provides [as here] any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, exterior doors, doorframes, and hardware incident thereto, screens and windows or other fixtures designed to serve a single separate interest, but located outside the boundaries of the separate interest, are exclusive use common areas allocated exclusively to that separate interest.”
Here, the original CC&R’s defined a “Unit” as “any portion of a building located on The Properties designed and intended for use and occupancy as a residence . . . , the boundaries of each unit are the interior surfaces of the ceiling, floors, perimeter walls, windows and doors thereof; which . . . boundaries include the air space so encompassed and the portions of the building located within [the] air space.” The CC&R’s defined “Common area” as “all land and improvements, and all portions of the divided property not located with any unit.”
[11] We conclude that under the plain language of section 712, subdivision (a), a condominium owner in a project such as Fourth La Costa has no right to post for sale and for lease advertisements in the common areas. Had the Legislature intended to extend such a right it could have expressly stated so. [4] While an association may not ban such advertisements entirely (see Linmark Associates, Inc. v. Township of Willingboro, supra, 431 U.S. 85, 92, 98), to protect all owners it may impose reasonable restrictions for aesthetic purposes (id. at p. 93). Here, the amendment allows an owner to post a sign in the window of his or her unit, and it is undisputed that such a sign would be viewable to the public. Seith claims the size restriction of 18 inches by 24 inches “would prohibit the typical professional real estate broker sign,” but she did not provide the trial court with any supporting evidence. Moreover, we see no problem with allowing only one sign per unit, or requiring that signs be removed within three days of a lease or sale. Article IV, Section 3(A) of the First Restated CC&R’s is reasonable. [582]
C
Further, Seith contends Article VI, section 1(B) of the First Restated CC&R’s increases the costs and burdens of owners who lease their units, because it requires leases to be in writing and to state the tenant is bound by the provisions of the CC&R’s. At the trial court, the Owners Association explained “there are many situations where a tenant is in violation of the governing documents and notice to the Owner regarding the tenant’s violations have gone unheeded.” The Owners Association sought written leases to ensure that provisions of the CC&R’s are contained in the lease, as lessees would not otherwise be bound to follow them. “When the declaration permits leasing, a community association faces enforcement problems if an owner’s tenant engages in conduct that violates other declaration provisions.” (1 Sproul & Rosenberry, supra, 6.45, p. 423.) Article VI, Section 1(B) is reasonable.
Seith claims the provision makes tenants responsible for assessments and maintenance costs and “[n]o tenant in their right mind would agree to undertake that liability.” The First Restated CC&R’s, however, specifies that assessments are the personal obligations of owners. The CC&R’s pertain to a tenant’s conduct insofar as permitted uses are concerned. For instance, with limited exception each residence may be used only for residential purposes, each residence may have only a reasonable number of pets, and no temporary structures are allowed. Potential tenants should not be concerned about any liability for assessments against an owner. [5]
V. Amendment of Bylaws
The original Bylaws, adopted in 1969, provided they could be amended by a vote of not less than 75 percent of all votes entitled to be cast. In its supplemental petition, the Owners Association sought a reduction in the percentage of required votes. It cited Corporations Code section 7515, [ 583] subdivision (a) which provides: “If for any reason it is impractical or unduly difficult for any corporation to call or conduct a meeting of its members, . . . or otherwise obtain their consent, in the manner prescribed by its articles or bylaws, or this part, then the superior court . . . , upon petition . . . may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members . . . be authorized, in such a manner as the court finds fair and equitable under the circumstances.”
The statute further provides: “The order issued pursuant to this section may dispense with any requirement relating to the holding of and voting at meetings or obtaining of votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the articles, bylaws, or this part.” (Corp. Code, subd. (c).) As with Civil Code section 1356, Corporations Code section 7515 is intended to “overcome membership voting apathy.” (Greenback Townhomes Homeowners Assn. v. Rizan (1985) 166 Cal.App.3d 843, 849.)
[12] Seith asserts Corporations Code section 7515 authorizes the court to order only a prospective vote, and it erred by approving a vote retrospectively. In rejecting that interpretation, commentators have explained: “Corporations Code[, section] 7515 [subdivision] (a) seems prospective in permitting the court to order ‘that such a meeting be called or that a written ballot . . . be authorized in such a manner as the court finds fair and equitable.’ Under this interpretation the court could act prospectively to relax voting or meeting requirements only as they apply to meetings or requests for member approvals that occur after the association has failed in its efforts to obtain member approvals or to conduct meetings in accordance with applicable bylaw, article, or statutory requirements. Corporations Code[, section] 7515 [subdivision] (c), however, permits the order to ‘dispense with any requirement relating to the holding of and voting at meetings or obtaining of votes.’ Thus, a more reasonable interpretation of [section] 7515 would be that the court may, as empowered under [Civil Code, section] 1356 with regard to the declaration, retroactively approve amendments to the articles and bylaws.” (2 Sproul & Rosenberry, supra, 9.44, pp. 682-683.)
We agree with that assessment, particularly since Civil Code section 1356, which applies to the amendment of CC&R’s, was patterned after Corporations Code section 7515. (2 Sproul & Rosenberry, supra, at 9.30, p. 660.) The Owners Association established the apathy of a substantial percentage of owners and that the supermajority requirement precluded it from amending the Bylaws as well as the CC&R’s. We are unaware of any reason to allow relief from the supermajority vote requirement after a vote has already been taken in the context of CC&R’s — which are central to the establishment, [ 584] operation and maintenance of a common interest development and ordinarily control in the event of a conflict with the bylaws (Hanna & Van Atta, supra, 1.30, pp. 28-29; 18:19, pp. 1103-1104) — but only allow prospective relief in the context of bylaws. We find no error.
VI. Constitutionality of Section 1356
A
Seith contends that as applied retroactively to the original CC&R’s, section 1356 is an unconstitutional impairment of the obligation of contracts. [6] Article I, section 10 of the United States Constitution states: “No State shall . . . pass any . . . Law impairing the Obligation of Contracts.” Article I, section 9 of the California Constitution provides: “A . . . law impairing the obligation of contracts may not be passed.”
[13] “The language of these constitutional provisions ‘appears unambiguously absolute . . . .’ [Citation.] However, the provisions have not been so treated by the courts. ‘Read literally, these provisions appear to proscribe any impairment. However, it has long been settled that the proscription is “not an absolute one and is not to be read with literal exactness like a mathematical formula.” [Citation.]’ ” (Hall v. Butte Home Health, Inc. (1997) 60 Cal.App.4th 308, 318.)
“As the United States Supreme Court has interpreted the federal contracts clause, contracts clause questions turn on a three-step analysis. [Citation.] The first and threshold step is to ask whether there is any impairment at all, and, if there is, how substantial it is. [Citation.] If there is no ‘substantial impairment, that ends the inquiry. If there is substantial impairment, the court must next ask whether there is a ‘significant and legitimate public purpose’ behind the state regulation at issue. [Citation.] If the state regulation passes that test, the final inquiry is whether means by which the regulation acts are of a ‘character appropriate’ to the public purpose identified in step two.” (Barrett v. Dawson (1998) 61 Cal.App.4th 1048, 1055.) The same analysis is applicable to the state constitution’s contract clause. (Id. at p. 1056.)
“The obligations of a contract are impaired by a law which renders them invalid, or releases or extinguishes them.” (Home Building & Loan Assn. v. Blaisdell (1934) [585] 290 U.S. 398, 431.) For instance, a law that discharged a debtor from liability was held invalid as applied to contracts in existence when the law was passed. (Ibid.)
[14] The Legislature has applied the Davis-Stirling Act ( 1350 et seq.) “both prospectively and to existing documents.” (2 Sproul and Rosenberry, supra, 9.47, p. 693.) To any extent the reduction in the percentage of affirmative votes required to amend CC&R’s may be said to substantially impair preexisting contract rights, there is no unconstitutionality because the statutes have a significant and legitimate public purpose and act by appropriate means. (Barrett v. Dawson, supra, 61 Cal.App.4th at p. 1055.) [15] ” ‘ “[A]s is customary in reviewing economic and social regulation, . . . courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure.” ‘ ” (Hall v. Butte Home Health, Inc., supra, 60 Cal.App.4th at p. 322.)
Section 1356 is intended “to give a property owners’ association the ability to amend its governing documents when, because of voter apathy or other reasons, important amendments cannot be approved by the normal procedures authorized by the declaration. [Citation.] In essence, it provides the association with a safety valve for those situations where the need for a supermajority vote would hamstring the association.” (Blue Lagoon Community Assn. v. Mitchell, supra, 55 Cal.App.4th at p. 477.) Owners have a substantial interest in the long-term viability of a condominium project, and that interest is not served when a supermajority vote requirement and voter disinterest combine to preclude or unduly hinder an association’s efforts to amend outdated governing documents. (See Rest. 3d Property, Servitude, 6.12, com. a., p. 226.)
B
Additionally, Seith claims section 1356 is unconstitutional because it violates owners’ procedural due process rights and equal protection rights. The record, however, does not show that Seith raised these issues at the trial court. “Typically, constitutional issues not raised in earlier civil proceedings are waived on appeal.” (Bettencourt v. City and County of San Francisco (2007) 146 Cal.App.4th 1090, 1101.) We decline to reach the issues. [586]
DISPOSITION
The order is affirmed. The Owners Association is entitled to costs on appeal.
Huffman, J., and Nares, J., concurred.
[1]. Undesignated statutory references are to the Civil Code.
[2]. The Owners Association did not file a respondent’s brief, and thus we decide the appeal based on the record, the opening brief and any oral argument by Seith. (Cal. Rules of Court, rule 8.220(a)(2).)
[3]. Technically, the Bylaws were amended under Corporations Code section 7515 rather than Civil Code section 1356, as discussed below.
[4]. Commentators on common interest developments indicate that sections 712 and 713 apply to common interest developments, but they do not discuss any right of owners to place for sale or for lease signs in common areas. (See, e.g., 1 Sproul & Rosenberry, Advising Cal. Common Interest Communities (Cont.Ed.Bar. 2007) 6.7, pp. 389-391 (hereafter Sproul & Rosenberry); Hanna & Van Atta, Cal. Common Interest Developments (2007) 22.61, pp. 1675-1678 (hereafter Hanna & Van Atta).) Sproul and Rosenberry explain that “[l]ike so many other Davis-Stirling Act statutory provisions that seek to regulate a subject matter addressed in other California statutes that are applicable to common interest communities, no effort is made to clearly integrate the new statutory rules with pre-existing laws pertaining to the same subject. For example, new [Civil Code section] 1353.6 suggests that governing documents could prohibit any form of commercial expression by signs, banners and the like, and yet [Civil Code sections] 712 and 713 have for many years prohibited private covenants from prohibiting or restricting the right of owners to display signs of reasonable dimension, design, and location that advertise the owner’s property for sale, lease, or exchange.” (1 Sproul & Rosenberry, supra, 6.7, pp. 390-391.)
[5]. Seith also challenges the reasonableness of Article V, Section 8 of the First Restated CC&R’s, which authorizes the collection of interest on unpaid assessments; and Article V, Section 9, which pertains to the recordation of liens for delinquent assessments. She did not, however, address those provisions at the trial court. “As a general rule, failure to raise a point in the trial court constitutes . . . waiver and appellant is estopped to raise that objection on appeal.” (Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, 167.) The First Restated CC&R’s contain dozens of new provisions and amended provisions, and the trial court could not be expected to comb through them and independently research each one to determine its reasonableness. It was incumbent on Seith to raise all objections she had.
[6]. Seith also contends Corporations Code section 7515 impairs the obligations of contracts, but she did not preserve the issue for appellate review by raising it at the trial court. (Hale v. Morgan (1978) 22 Cal.3d 388, 394.)
Related Links
Voter Apathy Not a Required Showing in a Petition to Reduce Percentage of Affirmative Votes Required to Amend CC&Rs – Published on HOA Lawyer Blog (04/19)
Blue Lagoon Community Association. v. Mitchell
[Amendments to CC&Rs; Court Petition] Objectors to a petition brought pursuant to Civ. Code § 1356 (§ 4275) are not entitled to costs and attorney’s fees when the petition is denied.
Jeffrey S. Mintz, in pro. per., and for Objectors and Appellants.
Neuland & Nordberg, Hickey & Neuland, William P. Hickey, David E. Hickey and Robert J. Legate for Petitioner and Respondent.
OPINION
SILLS, P. J.
Blue Lagoon Community Association (the Association) petitioned the superior court pursuant to Civil Code section 1356 for an [474] order approving two amendments to the Association’s declaration of covenants, conditions and restrictions (CC&R’s) that had received approval from a majority of the members, but had not received the supermajority vote required by the declaration.[1] Section 1356 permits the superior court to reduce the percentage of affirmative votes necessary to amend a declaration where the property owners’ association is unable to obtain approval of the proposed amendments by the percentage of votes required by the declaration.
The amendments proposed by the Association were controversial and had been the subject of an intense political battle within the Association. Therefore, when the petition was filed several members of the Association (the objectors) hired an attorney and filed opposition to it.[2] Other members opposed to the proposed amendments also appeared and filed papers in opposition to the request. Following a contested hearing, the court denied the petition. The objectors then requested an award of attorney fees but the court ordered each side “to bear its own fees and costs.”
Only the objectors appeal. The sole issue they raise is whether objectors to a petition brought pursuant to Civil Code section 1356 are entitled to costs and attorney fees when the petition is denied. We answer that question in the negative.
I
Built in 1963, Blue Lagoon is a common interest development in Laguna Beach that comprises 119 condominium units in 14 separate buildings. Five of the buildings, which include thirty-six units, are located on the beach behind a common area seawall which protects the units from the ocean. The remaining buildings are situated for the most part on the slopes which [475] overlook, but are not directly threatened by, the ocean. CC&R’s were recorded against the subdivision in 1964 designating certain property, such as the seawall, common area which must be maintained by the Association. The covenants run with the land until July 1, 2014.
Over the years, the maintenance and repair of the seawall has been one of the largest recurring expenses for the Association. There was evidence that it had cost the Association around $1.5 million to keep it in place and operating. Maintenance and repair of the seawall had also been the focal point of an acrimonious dispute between the members. Owners whose properties are protected by the seawall want each unit to pay an equal share of its maintenance and repair costs because it is part of the common area. On the other hand, owners whose properties are not directly benefited by the seawall want each unit to pay only a pro rata share of the costs equal to the benefit each unit receives, if any.
This dispute is fueled by a weighted voting system, designed by the developer of the subdivision, which many members feel is unfair. When the development was built each unit was assigned an undivided percentage interest in the common area which ranged from a low of .56 percent to a high of 1.42 percent. The units with the higher percentage interest are generally located near the seawall. The percentage interest assigned to each unit determines the unit’s voting power, both in terms of whether a quorum is present and whether action proposed by the Association is adopted. However, expenses approved by the Association are shared equally by the units, regardless of the unit’s percentage interest in the common area. Thus, situations can arise where a minority of the members can force a majority of the members to pay for common area maintenance and repairs which the majority opposes-which is precisely what the Association and many of its members claim is happening here and why they believe the proposed amendments are so important.
At the urging of several members, the Association proposed two amendments to the CC&R’s. The first one provided for equal voting rights, i.e., “one unit, one vote.” The second one provided the governing documents could be amended by majority, as opposed to the then required 75 percent supermajority, vote. The proposed amendments were submitted to the property owners for a vote, and despite extensive efforts by all sides, not everyone voted. Tallying the votes of those who participated in the election, the amendments failed to receive sufficient affirmative votes. The first proposal received 71 percent of the vote, and the second one received 69 percent of the vote.
The Association then filed a petition pursuant to Civil Code section 1356, which was denied. Although the court expressed concern about the validity [476] of the unequal voting arrangement, and thought that amendment perhaps could be approved, it denied the petition as a whole on the basis that the proposed amendments were “unreasonable.”[3] The court’s apparent fear was the proposed amendments, as drafted, would allow the Association to cease maintaining the seawall.
II
[1] Having successfully fended off the petition, the objectors claim they are entitled to costs and attorney fees as the “prevailing party” because the petition was denied. They claim costs as a matter of right under Code of Civil Procedure section 1032, subdivision (b), and attorney fees under Civil Code section 1354 (because there is no provision for attorney fees in section 1356) and other equitable principles.
The objectors’ argument begins with an assertion that the petition was an “action” which proposed the dilution of their voting rights, and thus their opposition to the petition was necessary to “enforce” the equitable servitudes and contractual provisions of the CC&R’s. As they view it, their enforcement of the CC&R’s gives them a right to exact a pound of flesh (in the form of fees and costs) from the Association for putting them through the ordeal of defending against the petition. But their characterization of the scope of the statute and the nature of the proceedings is misinformed.
Civil Code section 1356 provides that, “If in order to amend a declaration, the declaration requires owners having more than 50 percent of the votes in the association … to vote in favor of the amendment, the association, or any owner of a separate interest, may petition the superior court … for an order reducing the percentage of the affirmative votes necessary for such amendment. The petition shall describe the effort that has been made to solicit approval of the association members in the manner provided in the declaration, the number of affirmative and negative votes actually received, the number or percentage of affirmative votes required to effect the amendment in accordance with the existing declaration, and other matters the petitioner considers relevant to the court’s determination.” (§ 1356, subd. (a).) The petitioner is required to attach copies of the governing documents, the text of the proposed amendment, any notice and materials used to solicit voter approval, and a short explanation of the reason for the amendment. (§ 1356, subd. (a)(1)-(5).) In addition, the petitioner is required to give the [477] members of the Association and any holders of a security interest notice of the hearing. (§ 1356, subd. (c).) If the court finds the balloting “was conducted in accordance with the applicable provisions” of the governing documents, a “reasonably diligent effort” was made to permit members to vote, owners having “more than 50 percent of the votes … voted in favor of the amendment,” and the “amendment is reasonable” (§ 1356, subd. (c) (1)-(6)), the court may, in its discretion, “dispense with any requirement relating to … the number or percentage of votes needed for approval of the amendment that would otherwise exist under the governing documents.” (§ 1356, subd. (d).)
Viewed objectively, the purpose of Civil Code section 1356 is to give a property owners’ association the ability to amend its governing documents when, because of voter apathy or other reasons, important amendments cannot be approved by the normal procedures authorized by the declaration.(Sproul & Rosenberry, Advising Cal. Condominium and Homeowners Associations (Cont.Ed.Bar 1991) § 10.25, p. 459.)In essence, it provides the association with a safety valve for those situations where the need for a supermajority vote would hamstring the association. When the limited purpose of section 1356 is fully understood it is obvious a petition brought under this section is not an adversarial proceeding. No defendants are named. No rights are sought to be protected. No wrongs are sought to be redressed. As such, it cannot be said that by opposing the petition the objectors were enforcing the governing documents and thus entitled to attorney fees and costs.[4]
The objectors then argue that “equitable principles” support a statutory award of attorney fees because the Association’s petition violated its fiduciary duty to the minority members of the Association. This argument is premised on the notion the present weighted voting system is fair because it protects the minority’s rights from the tyranny of the majority, and the Association’s decision to file the petition represents a decision by the Association to “side” with the majority in violation of its fiduciary duties to the minority members. The theory seems to be that unless the objectors can claim fees and costs when they win, the Association will financially overwhelm them through the continuous filing of frivolous petitions under Civil Code section 1356.
This argument is shortsighted. In this case, the objectors “won.” But what if the Association had “won” and the petition had been granted? If we were to hold, as the objectors urge, that they are the prevailing party and thus entitled to attorney fees because they successfully beat back the majority’s efforts to amend the declaration, then is the Association entitled to its costs [478] and fees against the objectors when they successfully bring a petition under Civil Code section 1356? If the objectors’ analysis were correct, the answer would have to be yes. Further, the objectors’ position would have the undesirable effect of discouraging fair comment by members who are opposed, or at least do not fully support, an association’s effort to amend the declaration through this statutory procedure. No member of an association would dare appear or file opposition to a petition under section 1356 if the potential downside was having to bear the association’s entire costs for pursuing the petition. This was clearly not the intent of this section. The posttrial order is affirmed. The Association shall recover its costs on appeal.
Crosby, J., and Rylaarsdam, J., concurred.
FN 1. Enacted in 1985, section 1356 is part of the Davis-Stirling Common Interest Development Act (Civ. Code, §§ 1350-1373) and is patterned after Corporations Code section 7515. It replaces the commonly used terms “covenants, conditions, and restrictions” and “CC&R’s” with the term “declaration.” (Civ. Code, § 1351, subd. (h).)
FN 2. Objectors are Gwendolyn V. Mitchell, Elbert Davis, E. Cardon Walker, William Caldwell, Joseph T. Broderick, and Jeffrey S. Mintz. After the notice of appeal was filed, the Supreme Court held in Trope v. Katz (1995) 11 Cal.4th 274 , 292 [45 Cal.Rptr.2d 241, 902 P.2d 259] that an attorney who litigates in propria persona cannot recover reasonable attorney fees under Civil Code section 1717. Because the objectors’ attorney, Jeffrey S. Mintz, had also appeared as a party he was concerned that Trope might bar his attorney fee claim even though he had substituted in as the attorney of record only at the appellate level. Consequently, he filed a “motion to correct erroneous designation of party” with this court claiming he was not a proper party because title to the property was held in trust and he was only acting in his capacity as a trustee of the family trust. We do not decide that motion because, as we hold below, the objectors do not have any right to recover attorney fees in this case in any event. (Olsen v. Breeze, Inc. (1996) 48 Cal.App.4th 608 , 629 [55 Cal.Rptr.2d 818].)
FN 3. A court cannot grant the petition unless it finds, among other things, that the proposed “amendment is reasonable.” (Civ. Code, § 1356, subd. (c)(5).)
Related Links
Voter Apathy Not a Required Showing in a Petition to Reduce Percentage of Affirmative Votes Required to Amend CC&Rs – Published on HOA Lawyer Blog (04/19)
SB Liberty, LLC v. Isla Verde Association, Inc.
[Board Meetings; Attendance Rights] The right to attend a HOA’s board meetings extends only to the HOA’s members, not a member’s agent or attorney.
Lepiscopo & Associates Law Firm and Peter D. Lepiscopo for Plaintiff and Appellant.
Epsten Grinnell & Howell, William S. Budd; Gates, O’Doherty, Gonter & Guy, Thomas A. Scutti and Douglas D. Guy for Defendant and Respondent.
OPINION
P.J. NARES
INTRODUCTION
In 2006 Gregg and Janet Short (together the Shorts, who are not parties to this appeal but are interested persons) purchased a home in the Isla Verde residential community (Isla Verde). They then transferred title to themselves as trustees of their family trust and later transferred title to plaintiff SB Liberty, LLC (SB Liberty), a California limited liability company organized in early 2011, which is owned by the Shorts as trustees of their trust and is managed by Gregg Short, SB Liberty’s sole manager. The Shorts reside in the home. Defendant Isla Verde Association, Inc. (the Association) is a California nonprofit mutual benefit corporation that is an association of the Isla Verde homeowners. It is undisputed that SB Liberty is a member of the Association.
This action against the Association for injunctive relief (among other things) arose when the Association’s board of directors (the Board) denied SB Liberty’s retained counsel, Peter D. Lepiscopo, access to the Board’s September and October 2011 meetings. SB Liberty brought a motion for preliminary injunction seeking to enjoin the Association and the Board from taking any action to prevent or interfere with SB Liberty’s representatives, including Lepiscopo, attending and participating in the Board’s meetings. The court denied the motion.
[275] SB Liberty appeals the denial of its motion for preliminary injunction, contending (1) the Association─a “quasi-government entity”─has prevented SB Liberty─whose association, speech, and member rights are fundamental in nature─from attending the open sessions of the Association’s Board meetings by excluding its chosen representative─attorney Lepiscopo[1]─from those meetings, thereby causing SB Liberty to suffer great and irreparable harm; and (2) SB Liberty is entitled to send the representative of its own choosing (Lepiscopo) to the open sessions of the Board’s meetings because SB Liberty is a member of the Association but not a natural person. We affirm the order denying SB Liberty’s motion for preliminary injunction.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
Isla Verde is a residential community consisting of 87 single-family properties located in the Lomas Santa Fe area of Solana Beach. The Association is a nonprofit mutual benefit corporation established to conduct the business of Isla Verde’s member homeowners. The Association conducts its business pursuant to various governing documents, including the articles of incorporation (Articles), protective covenants and restrictions (PC&Rs) and bylaws (Bylaws).
The Association operates through its board of directors (Board), which consists of seven Association “members,” which the Bylaws define as “[e]very beneficial owner (as defined by California Code, and as distinguished from a security owner) of real property situated in . . . Isla Verde.”
The Bylaws contain rules governing the meetings of members and the Board. Article XV, section 15.14, of the Bylaws provides that “[a]ny member in good standing may attend any [Board] meeting, except those portions of such meetings which are declared as ‘Executive Session’ meetings.” (Italics added.)
After the Shorts transferred title of their home to themselves as trustees of their family trust in mid-2006, they submitted architectural plans to remodel the their house, which eventually led to a dispute between the Shorts and the Association regarding the scope of the construction the Shorts were permitted to perform, eventually resulting in litigation brought by the Association.
SB Liberty’s articles of organization were filed in early 2011, establishing it as a limited liability company with Gregg Short designated as the sole manager.
[276] Later that year, the Shorts’ retained counsel, Lepiscopo, provided notice to the Association’s legal counsel, William S. Budd, that he represented the Shorts. In that notice, Lepiscopo requested various documents and a “detailed summary of the purpose for and status of any proposed amendments to the governing documents.”
Thereafter, Lepiscopo advised Budd that he might attend the September 14,2011 Board meeting on behalf of the Shorts. Budd advised Lepiscopo that he was not planning to attend the September meeting and asked that Lepiscopo not attend, stating that “the Rules of Professional Conduct prohibit communication with a represented party without permission from that party’s attorney.”
Lepiscopo replied, indicating his attendance at the upcoming September 14 Board meeting would not implicate the Rules of Professional Conduct because he would be appearing as a representative of his clients, whom he again identified as Gregg and Janet Short.
On the day before the Board meeting, Budd reiterated in an e-mail to Lepiscopo that he was not allowed to attend the Board meeting over Budd’s objection, as it would violate rule 2-100 of the Rules of Professional Conduct, and also instructed Lepiscopo that he could not communicate with his client without Budd’s permission.
Lepiscopo responded with a letter, which he sent to Budd by e-mail and fax, disagreeing with Budd’s interpretation of rule 2-100 and stating that he (Budd) and the Board “do not hold a veto over [the Shorts’] right to decide the manner in which they attend any [Association] Board meeting,” and reiterating that he (Lepiscopo ) planned to attend the September 2011 board meeting on behalf of the Shorts as their representative.
Lepiscopo attempted to attend the September 2011 Board meeting on behalf of the Shorts, but was denied access to the meeting. Specifically, after he advised the Board that he represented the Shorts, Lepiscopo was asked to leave and was advised that the Shorts could be at the meeting, but not their attorney. When Lepiscopo refused to leave, the meeting was adjourned to a board member’s residence.
The next day the Shorts, as trustees of their family trust, recorded a grant deed conveying ownership of their residence to SB Liberty, a California limited liability company.
About a week later the Shorts, as trustees of their trust, and Gregg Short, as the manager of SB Liberty, executed─as principals─a “Specific Power of [277] Attorney” (which they recorded two days later) that purportedly gave Lepiscopo─as their attorney-in-fact or agent─the right to “present requests and motions” to the Board and to “attend and participate” in the Board’s meetings on their behalf, “as fully, to all intents and purposes, as [the] Principals might or could do if personally present.”
Thereafter, Lepiscopo notified Budd of his intention to attend the Board’s October 2011 meeting on behalf of the Shorts. Lepiscopo attached to his letter a copy of the recorded power of attorney.
In a reply letter, Budd stated that the power of attorney “is really nothing more than authorization from the Shorts to act as their attorney”; “[i]t doesn’t confer any power on you except to attend meetings and advocate their interests”; and “[i]t doesn’t even qualify as a proxy because it expressly withholds the power to vote at membership meetings.” Budd also stated:
“[W]hile [the Power of Attorney] purports to give you the power to make motions, you may not [do so] for two reasons: First, only Board Members can make motions at board meetings. Second, only members can make motions at membership meetings. That power of attorney does not appear to confer any membership rights to you because a membership cannot be parsed out among different people. In other words, one person cannot have voting rights, while another has the right to make motions at membership meetings.”
In his letter, Budd advised Lepiscopo that he would forward to the Board Lepiscopo’s correspondence and his “request to attend meetings on behalf of the Shorts.” Budd informed Lepiscopo of the time and place of the Board’s October 2011 meeting and stated that the Board would consider in executive session his request to attend, and it would advise him of their decision before the open session began.
At the October 12, 2011 Board meeting, after the Board met in executive session, the Board’s chairperson advised Lepiscopo that the Board had met and voted to exclude his attendance at the meeting, asked him to leave, and he did.
B. Procedural Background
SB Liberty commenced this action against the Association in late October 2011, by filing a complaint in which it sought injunctive relief, a refund of allegedly unlawful increases in annual dues, specified civil penalties, and declaratory relief. SB Liberty attached to the complaint copies of the Articles, the PC&Rs, and the Bylaws.
[278] 1. SB Liberty’s motion for preliminary injunction
Soon thereafter, SB Liberty filed an ex parte application for an order to show cause hearing re preliminary injunction and for the issuance of a temporary restraining order pending hearing on a preliminary injunction (motion for preliminary injunction), seeking (as pertinent here) a preliminary injunction restraining and enjoining the Association and its Board “from taking any and all action, whether directly or indirectly, to prevent or interfere with SB Liberty’s representatives, including its legal counsel, Mr. Lepiscopo,” from (1) “presenting written motions or proposals to [the Association] prior to any HOA Board Meeting”; (2) “attending and fully participating in the November 2011 HOA Board Meeting”; and (3) “attending and fully participating in any future HOA Board Meeting.”
In support of its motion, SB Liberty asserted the Association is a quasi-governmental entity and, as SB Liberty’s “association and member rights are fundamental in nature,” its loss of such rights constituted irreparable harm. SB Liberty also asserted the Association’s governing documents and various sections of the Civil Code and Corporations Code “support SB Liberty’s position that Mr. Lepiscopo was authorized to attend the September and October 2011 [Association] Board meetings.”
In its opposition to the motion, the Association argued “[t]here is no legal basis for allowing a member’s legal counsel to appear before the Board without his client present, and without [the Association’s] counsel at the Board meeting.” The Association also asserted that Lepiscopo’s direct contact with the Board without the Association’s permission would be a violation of rule 2-100 of the Rules of Professional Conduct; “[t]he only persons allowed to attend a meeting are members”; Lepiscopo was “neither an officer nor [a] member of [SB Liberty]”; and SB Liberty’s power of attorney did not grant Lepiscopo “rights of membership or ownership in SB Liberty’s real property.”
Following a hearing on the motion and submission of supplemental briefing by the parties, the court took the matter under submission.
2. Ruling
On December 28, 2011, the court issued its order denying the Association’s motion for preliminary injunction. Regarding the issue of whether SB Liberty had met its burden of showing a reasonable probability of prevailing on the merits, the court first noted that the parties could not “point to a particular section, or sections, of the law” or any treatises pertaining to the issue of whether SB Liberty, as a member of the Association, could “designat[e] a [279] representative to attend, and participate in, [Association] meetings.” The court stated it “was left to conclude that the issue . . . must be decided on general principles of law relating to [common interest developments], corporations, [limited liability companies (LLC’s),] and agency.”
The court found it was undisputed that SB Liberty became a member of the Association when the Shorts transferred ownership of their lot to SB Liberty. Citing sections 17150 and 17151 of the Corporations Code, the court explained that “[m]anagement of an LLC is vested in all members [of the LLC] unless the articles of organization provide otherwise,” and an LLC can be managed by one or more managers who need not be members of the LLC. The court also found it was undisputed that SB Liberty’s counsel, Lepiscopo, was not a member of SB Liberty.
The court rejected SB Liberty’s claim that the decision to exclude Lepiscopo from Association meetings as SB Liberty’s designated representative was an abridgement of its First Amendment freedom. Noting that SB Liberty was “free to appear through its manager [(Gregg Scott)] and its members” and finding that Lepiscopo was neither a manager nor a member of SB Liberty, the court concluded that “SB Liberty’s freedom has not been abridged by an act of the [Association].”
Noting that SB Liberty’s complaint described the Association as a nonprofit mutual benefit corporation, the court found the Board had the authority under Corporations Code section 7210 to determine how to conduct its meetings and to exclude nonmembers from its meetings. Citing Corporations Code section 7320 and noting that “[t]he parties fail[ed] to point to a provision of the [Articles] or [Bylaws] which authorizes a member to transfer membership or any right arising from membership except the right to vote by proxy,”[2] the court found SB Liberty “is not allowed to transfer its membership rights to [Lepiscopo].” The court concluded that SB Liberty “ha[d] failed to show a reasonable probability of prevailing on this issue at trial.”
DISCUSSION
In support of its claim that the court erroneously denied its motion for preliminary injunction, SB Liberty contends that (1) the Association is a “quasi-government entity” and SB Liberty’s association, speech, and member rights are fundamental in nature; (2) it is entitled to send the representative of its own choosing─attorney Lepiscopo─to the open sessions of the Board’s meetings because SB Liberty is a member of the Association but not a natural [280] person; and (3) by preventing Lepiscopo from attending and participating in those meetings on behalf of SB Liberty as its representative, the Association has caused it to suffer a loss of its fundamental rights, which constitutes great and irreparable harm. These contentions are unavailing.
A. Applicable Legal Principles
The general purpose of apreliminary injunctionis to preserve the status quo pending a determination on the merits of the action. (Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528.) “‘The granting or denial of a preliminary injunction does not amount to an adjudication of the ultimate rights in controversy. It merely determines that the court, balancing the respective equities of the parties, concludes that, pending a trial on the merits, the defendant should or . . . should not be restrained from exercising the right claimed by him.'” (Ibid.)
A trial court must weigh two interrelated factors when deciding whether to grant a plaintiff’s motion for apreliminary injunction: (1) the likelihood that the plaintiff will prevail on the merits at trial; and (2) the relative interim harm to the parties from the issuance or nonissuance of the injunction; that is, the interim harm the plaintiff is likely to sustain if the injunction is denied as compared to the harm the defendant is likely to suffer if the preliminary injunction is issued. (People ex rel. Gallo v. Acuna (1997) 14 Cal.4th 1090, 1109; Butt v. State of California (1992) 4 Cal.4th 668, 677-678.)
Thus, “[t]he trial court’s determination must be guided by a ‘mix’ of the potential-merit and interim-harm factors; the greater the plaintiff’s showing on one, the less must be shown on the other to support an injunction.” (Butt v. State of California, supra, 4 Cal.4th at p. 678.) “A trial court may not grant a preliminary injunction, regardless of the balance of interim harm, unless there is some possibility that the plaintiff would ultimately prevail on the merits of the claim.” (Ibid.) Accordingly, the trial court must deny a motion for a preliminary injunction if there is no reasonable likelihood the moving party will prevail on the merits. (Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 447; see Yu v. University of La Verne (2011) 196 Cal.App.4th 779, 786-787 [order denying a motion for preliminary injunction should be affirmed if the trial court correctly found the moving party failed to satisfy either of the two factors].)
Appellate review of a trial court’s order granting or denying a motion for preliminary injunction generally is “limited to whether the trial court’s [281] decision was an abuse of discretion.” (Butt v. State of California, supra, 4 Cal.4th at p. 678; Yu v. University of La Verne, supra, 196 Cal.App.4th at pp. 786-787.) “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.”‘” (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69.) The burden rests with the party challenging a trial court’s decision to grant or deny a preliminary injunction to make a clear showing of an abuse of discretion. (Ibid.)
However, as this court explained in California Assn. of Dispensing Opticians v. Pearle Vision Center, Inc. (1983) 143 Cal.App.3d 419, 426, “when the matter is solely a question of a violation of law the standard of review is not abuse of discretion but whether statutory or constitutional law was correctly interpreted and applied by the trial court.”
B. Analysis
In denying SB Liberty’s motion for a preliminary injunction, the court found that the Board may exclude from the open sessions of its meetings a person like Lepiscopo who is not a member of the Association and determined that SB Liberty failed to meet its burden of showing a reasonable probability of prevailing on the merits at trial. The court did not err.
We first conclude that SB Liberty’s claim it is entitled to send the representative of its own choosing─here, Lepiscopo─to participate in the open sessions of the Board’s meetings on SB Liberty’s behalf, is unavailing. SB Liberty relies in part on Civil Code section 1363.05, which is known as the Common Interest Development Open Meeting Act and is part of the Davis-Stirling Common Interest Development Act (Civ. Code, § 1350 et seq.).[3] (See Civ. Code, §§ 1350 & 1363.05, subd. (a).) With exceptions not pertinent here, subdivision (b) of Civil Code section 1363.05 provides that “[a]ny member of the association[[4]] may attend meetings of the board of directors of the association . . . .” (Italics added.) Subdivision (h) of that section provides that “[t]he board of directors of the association shall permit any member of the association to speak at any meeting of the association or the board of directors, except for meetings of the board held in executive session.” (Italics added.)
[282] The Association’s governing documents define who qualifies as a member of the Association and address both the rights of members and their participation at Board meetings. Article I, paragraph 7, of the PC&Rs defines “Member” as “an Owner, as defined below, who is entitled to membership in the Association as provided in this declaration.” That paragraph also provides that “[o]wnership of a Lot shall be the sole qualification for membership in the Association.” Article I, paragraph 8, of the PC&Rs defines “Owner” as “the Record owner or owners, whether one or more persons or entities, of fee simple title to any Lot, but excluding those having such interest merely as security for the performance of an obligation.”
Similarly, article III of the PC&Rs states that “[t]he owner of a lot shall automatically, upon becoming an owner of same, be a member of the Association” and provides that a member “shall remain a member thereof until such time as his ownership ceases for any reason.” That article also provides that “[n]o member shall resign his membership,” and “[m]embership in the Association shall not be transferred, encumbered, or alienated in any way, except upon the sale or encumbrance of the lot to which it is appurtenant.”
Regarding the qualifications and rights of members, article III, paragraph 3.1, of the Bylaws provides that “[t]hose members whose annual dues and assessments (if any) are current shall be considered ‘Members in Good Standing'” and that such members “have all rights inherent with that membership, including, but not limited to the right to vote on all measures submitted to the membership at any meeting or mail ballot,” as well as “the right to serve on any committee” and “the right to serve as directors and/or officers.”
Paragraph 15.14 of article XV of the Bylaws, which is titled “Participation of members other than directors at meetings of the [Board],” provides that “[a]ny member in good standing” may attend the open sessions of the Board’s meetings and delineates the scope of their participation at such meetings:
“Any member in good standing may attend any [Board] meeting, except those portions of such meetings which are declared as ‘Executive Session’ meetings. Once an agenda item has been declared open for discussion they may ask to be recognized for the purposes of addressing the meeting in relation to that agenda item. [¶]Members may submit written proposals to the Secretary proposing matters for discussion and/or resolution. . . . [¶] The Board shall consider members’ proposals and consider and decide . . . the issues raised.” (Italics added.)
Here, the court found, and the Association does not dispute, that SB Liberty became a member of the Association when the Shorts transferred ownership of their lot to it.
[283] However, it does not follow (as SB Liberty contends) that, by virtue of its status as a member of the Association, SB Liberty is entitled to send Lepiscopo to attend and participate in the open sessions of the Board’s meetings on SB Liberty’s behalf as its representative. SB Liberty is a California limited liability company. Under the Beverly-Killea Limited Liability Company Act (Corp. Code, § 17000 et seq.) (the Act), management of the business and affairs of a limited liability company[5] is vested in its members[6] unless the articles of organization provide otherwise. (Corp. Code, § 17150.)[7] Under the Act, the articles of organization of a limited liability company “may provide that the business and affairs of the limited liability company shall be managed by or under the authority of one or more managers who may, but need not, be members.” (Id., § 17151, subd. (a).)
Thus, under the Act, the business and affairs of SB Liberty must be managed by the members of SB Liberty or, if authorized by its articles of organization, by Greg Short, who is the sole manager of SB Liberty. (Corp. Code, §§ 17150, 17151, subd. (a).)
Here, it is undisputed, as the court properly found, that Lepiscopo is not a member of SB Liberty. The record also shows he is not a manager of SB Liberty authorized by its articles of organization to manage its business and affairs. Thus, Lepiscopo is not authorized to manage the business and affairs of SB Liberty, and SB Liberty’s members and/or manager cannot delegate such management authority to him.
Furthermore, article III of the Association’s PC&Rs and applicable statutory authority prohibit SB Liberty from transferring to Lepiscopo any right arising from SB Liberty’s Association membership─except the right to vote [284] by proxy (see Corp. Code, § 7613)[8]─such as the right accorded to Association members under Article XV, paragraph 15.14, of the Bylaws to attend and participate in the open sessions of the Board’s meetings.[9] As the court properly found, the specific power of attorney executed by the Shorts (discussed, ante) did not expressly give Lepiscopo the right to vote on behalf of SB Liberty.
In addition, as the court also properly found, the Board had the authority to determine how to conduct its meetings and, thus, the power to prevent a nonmember (Lepiscopo) from attending and participating in those meetings on behalf of SB Liberty as its representative. (Corp. Code, § 7210;[10] see Burt v. Irvine Co.(1964) 224 Cal.App.2d 50, 51.)
Also unavailing is SB Liberty’s claim that by preventing Lepiscopo from attending and participating in the open sessions of the Board’s meetings on behalf of SB Liberty, as its representative, the Association has caused SB Liberty to suffer great and irreparable harm. The record shows, as the court properly found, that SB Liberty at all times was free to attend and participate in those meetings through its members or (if permitted by its articles of organization) its manager, Gregg Short. SB Liberty has failed to meet its burden of showing the exclusion of Lepiscopo from those meetings as its representative was an abridgment of its First Amendment or membership rights.[11]
[285] For all of the foregoing reasons, we affirm the court’s order denying SB Liberty’s motion for a preliminary injunction.
DISPOSITION
The order denying SB Liberty’s motion for preliminary injunction is affirmed. The Association shall recover its costs on appeal.
WE CONCUR:
McINTYRE, J.
AARON, J.
[1] Lepiscopo represented SB Liberty during the trial court proceedings in this matter and also represents SB Liberty on appeal.
[2] The court found that “[t]he agency agreement signed by [the Shorts] does not give Lepiscopo the right to vote.”
[3] “‘Common interest development’ means any of the following: [¶] (1) A community apartment project. [¶] (2) A condominium project. [¶] (3) A planned development. [¶] (4) A stock cooperative.” (Civ. Code, § 1351, subd. (c).)
[4] “‘Association’ means a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development.” (Civ. Code, § 1351, subd. (a).)
[5] The Act defines “limited liability company” as “an entity having one or more members that is organized under this title and is subject to the provisions of [Corporations Code] Section 17101.” (Corp. Code, § 17001, subd. (t).)
[6] The Act defines “member” as “a person who: [¶] (1) Has been admitted to a limited liability company as a member in accordance with the articles of organization or operating agreement, or an assignee of an interest in a limited liability company who has become a member pursuant to [Corporations Code] Section 17303. [¶] (2) Has not resigned, withdrawn, or been expelled as a member or, if other than an individual, been dissolved.” (Corp. Code, § 17001, subd. (x).)
[7] Corporations Code section 17150 provides: “Unless the articles of organization include the statement referred to in subdivision (b) of [Corporations Code] Section 17151 vesting management of the limited liability company in a manager or managers, the business and affairs of a limited liability company shall be managed by the members subject to any provisions of the articles of organization or operating agreement restricting or enlarging the management rights and duties of any member or class of members. If management is vested in the members, each of the members shall have the same rights and be subject to all duties and obligations of managers as set forth in this title.” (Italics added.)
[8] SB Liberty’s complaint alleges, and the Association’s PC&Rs indicate, that the Association is a California nonprofit mutual benefit corporation. Corporations Code section 7613, subdivision (a), which is part of the Nonprofit Mutual Benefit Corporation Law (Corp. Code, § 7110 et seq.), provides (subject to restrictions not pertinent here) that “[a]ny member may authorize another person or persons to act by proxy with respect to such membership except that this right may be limited or withdrawn by the articles or bylaws.” Article XII, section 12.3, of the Association’s bylaws provides that “[m]embers may vote in person or by written proxy.”
[9] As noted, article III of the Association’s PC&Rs provides “[m]embership in the Association shall not be transferred, encumbered, or alienated in any way, except upon the sale or encumbrance of the lot to which it is appurtenant.” Corporations Code section 7320, subdivision (a)(1) of the Nonprofit Mutual Benefit Corporation Law (see fn. 8, ante) provides: “Subject to [Corporations Code] Section 7613: [¶] (a) Unless the articles or bylaws otherwise provide: [¶] (1) No member may transfer a membership or any right arising therefrom.” (Italics added.)
[10] Corporations Code section 7210 of the Nonprofit Mutual Benefit Corporation Law (see fn. 8, ante) provides: “Each corporation shall have a board of directors. Subject to the provisions of this part and any limitations in the articles or bylaws relating to action required to be approved by the members ([Corporations Code] Section 5034), or by a majority of all members ([Corporations Code] Section 5033), the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board
[11] We express no opinion regarding the issue─which is not presented here─of whether an attorney appointed by an LLC member of the Association as the LLC’s manager would have the right to appear at the open sessions of the Board’s meetings on behalf of the LLC as its representative. It is undisputed that attorney Lepiscopo was not a member or manager of SB Liberty
Related Links
Homeowner Attorneys at your HOA’s Board Meetings? This Could Become the New Normal – Published on HOA Lawyer Blog (January 29, 2016)
Harvey v. The Landing Homeowners Association
[Conflicts of Interest; Burden of Proof] The burden of proof transfers onto the person challenging the interested transaction when the interested Director makes full disclosure of all material facts and recused himself from the board’s discussion and vote.
Butz Dunn DeSantis & Bingham, and Luke R. Corbett for Plaintiff and Appellant.
Murchison & Cumming, Kenneth H. Moreno and Scott J. Loeding for Defendants and Respondents.
OPINION
BENKE, J.
Plaintiff E. Miles Harvey appeals the judgment under Code of Civil Procedure section 437c for defendants (1) The Landing Homeowners Association, a California nonprofit mutual benefit corporation (LHA), (2) certain members of the board of directors (Board) of LHA, and (3) various residents of The Landing residing on the fourth floor of the condominium development (collectively defendants). Harvey contends the trial court erred when it granted summary judgment for defendants because: (a) the Board acted outside the scope of its authority when it determined fourth floor homeowners could exclusively use up to 120 square feet of inaccessible common area attic space, appurtenant to their units, for rough storage; (b) the Board lacked the power to make a material change in the restated declaration of restrictions (CC&R’s) for The Landing by allowing fourth floor homeowners to use the attic space common area for storage; and (c) the various resolutions passed by the Board, permitting use of that space for storage, were invalid because the Board vote lacked a disinterested majority.
We conclude the Board acted within its authority under the CC&R’s, and the undisputed evidence shows it properly exercised its discretion when it determined fourth floor homeowners could use up to 120 square feet of inaccessible attic space common area for storage. We further conclude the actions of the Board were not invalid because directors who owned units on the fourth floor of the project voted in favor of allowing limited exclusive use of the attic space common area. We therefore affirm the judgment. [813]
FACTUAL AND PROCEDURAL BACKGROUND
The Landing is a four-story, 92-unit condominium complex located in Coronado, California. On the fourth floor of The Landing, each of the 23 units has attic space adjacent to the units designated on the condominium plan as common area. The attic space common area is accessible only to the unit adjacent to it.
For many years, several fourth floor homeowners used the vacant attic space for storage. In mid-2002, a homeowner complained to the Board about that use, which prompted the Board to inspect the fourth floor units. Of the 23 units on the fourth floor, the Board discovered 18 of the homeowners were using between 50 and 288 square feet of the common area attic space for storage, with 10 homeowners using in excess of 120 square feet of that space as storage. In addition, one other fourth floor owner had converted a portion of the common area attic space into habitable living space.
After the inspections were completed, Harvey, who was then president of the Board, and two members of The Landing Architectural Review Committee (ARC) prepared a memorandum to the Board with the results of the inspection. The ARC memorandum recognized fourth floor homeowners had been using the attic space common area for at least 15 years, with many of these homeowners improving the space by adding features such as wallboard, lights, flooring, carpeting, closets, shelves and doors. The memorandum also recognized the homeowners’ use of the attic space was governed by Article IV, Section 12 of the CC&R’s, which provides:
“The Board shall have the right to allow an Owner to exclusively use portions of the otherwise nonexclusive Common Area, provided that such portions of the Common Area are nominal in area and adjacent to the Owner’s Exclusive Use Area(s) or Living Unit, and, provided further, that such use does not unreasonably interfere with any other Owner’s use or enjoyment of the Project.”
The ARC memorandum found the use of the attic space common area as storage by the fourth floor homeowners did not interfere with any other owner’s use or enjoyment of the project, and with one exception, the memorandum concluded the homeowners’ use of that space was “nominal” within the meaning of Section 12 of the CC & R’s. The ARC memorandum concluded by making several recommendations, including having the LHA enter into a license agreement with each of the fourth floor homeowners using the attic space common area.
The memorandum outlined the proposed terms of the license agreement, including, among other things, requiring the fourth floor homeowners to obtain insurance to cover their use of the attic space, preventing additional [814] modifications or improvements to the space without written approval from the Board and imposing a one-time assessment of $350 to cover the costs and fees associated with the drafting and recording of the license agreement.
Harvey decided to meet with legal counsel regarding the fourth floor homeowners’ use of the attic space common area. Among other things, legal counsel opined the LHA lacked authority to “grant the encroaching owners the ‘right’ to continue their use of the common area” because “using an attic for storage is not a nominal use.” Based on legal counsel’s report, at the next Board meeting Harvey requested the Board issue notices of violation under the CC&R’s to the 18 fourth floor homeowners using the attic space common area. When the Board refused, Harvey immediately resigned as president of the LHA, although he remained a director on the Board.
The City of Coronado (City) became involved in the matter when, in response to a complaint by a disgruntled homeowner regarding the continued use of the attic space common area, it issued to the Board a notice of violation under the California Building Code. Several Board members, including Harvey, met with two building inspectors for the City. The inspectors advised the Board the attic space could be used for storage, but not living space. The Board agreed to provide monthly updates to the City regarding the Board’s progress in mitigating all aspects of the notice of violation.
At its next meeting, the Board voted four to one in support of a motion finding a violation of the CC & R’s and the building codes by the fourth floor homeowners using the attic space common area. During the meeting, the Board recognized its authority under the CC&R’s to permit a “homeowner to use a `nominal area’ of the common area provided it is adjacent to [the owner’s] unit and such use would not interfere with any one else’s use.” By the same vote in a renewed motion, the Board purportedly decided: (1) 120 square feet or less of the attic space common area could be used for “rough storage (example: boxes, Christmas decorations, luggage, etc.)”; (2) the homeowners would have to ask the Board for “permission” to use the 120 square feet for storage; and (3) this “resolution would also apply to storage space in the pillars that are located in the entrance to front patios.” The Board also agreed to hold a workshop for homeowners to “discuss ideas to organize the restoration of the units that have violations.”
As it turns out, the average size of the fourth floor living units is about 2,250 square feet. The Landing has approximately 265,479 square feet, which includes approximately 80,000 square feet of common area. The total area approved for attic storage for all fourth floor units combined is 2,760 square feet (e.g., 23 units x 120 square feet), or a little more than 1 percent of the total building area, or approximately 3.5 percent of the total common area. [815]
The Board issued notices of violation to the fourth floor homeowners, telling them their use of the attic common area violated the CC & R’s and the California Building Code, directed them to restore the attic space to its original condition and advised them they could make a formal request to the Board for permission to use up to 120 square feet of common area for rough storage under certain conditions. In response to the notices of violation, several homeowners retained legal counsel who claimed those owners had obtained irrevocable rights to use the attic space that could not be disturbed by the Board.
To effectuate the Board’s resolution regarding the attic space common area, and to avoid litigation with the fourth floor homeowners, the Board prepared a standard “permission form” to be signed by those homeowners. Among other provisions, the form provided that the homeowner could use no more than 120 square feet of common area for rough storage only, that use of that space was subject to all provisions of The Landing Bylaws, the CC&R’s and governmental laws, rules and regulations, and that the Board reserved the right to terminate its approval of such use “for cause.” In 2003 the Board unanimously approved the “permission form,” after myriad revisions, which included three votes by homeowners who did not live on the fourth floor.
The Board also took steps to ensure the LHA’s insurance coverage would not be affected by the fourth floor homeowners’ use of the attic space common area. The Board consulted the LHA’s insurance broker, who determined the “use of the fourth-floor common area attic space in The Landing for storage purposes has not impacted The Landing insurance coverage … and has not jeopardized the insurability of The Landing premises.” The Board also required each fourth floor homeowner seeking to use the attic space to obtain liability insurance coverage of $1 million.
The City continued to conduct periodic inspections of the fourth floor units to ensure full compliance with applicable laws and regulations. After an inspection in mid-2004, the City found no unit with storage exceeding 120 square feet, and further concluded the units in question were “in compliance with the Building and Fire Codes.” The City conducted another inspection of the subject units in late 2005 to ensure Fire Code compliance. The City’s report stated “[a]ll units that had storage were within the maximum allowance] of 120 square feet.” The report did note, however, some minor noncompliance items, and asked the LHA to contact the City when they were corrected.
Harvey requested the Board call a special meeting of the members of the LHA after the Board in mid-2005 amended the rules and regulations of the LHA to set forth the common areas determined by the Board to be appropriate for storage use. Under the rule change, residents of The Landing could not [816] store property in the common area other than “in the garage storage lockers, or in cabinets installed in the pillars of entry patios, or in the attics of fourth-floor living units to the extent permitted by the Board….” The homeowners approved the rule change by a 56-to-7 vote.
The Board passed a resolution in 2006 transferring to the fourth floor owners the “exclusive right to use the common area attic space in that owner’s unit,” as allowed under newly-enacted Civil Code section 1363.07(a)(3)(E). The Board’s resolution provided:
“(a) all fourth floor common area attic space is accessible only from the inside of a condominium;
“(b) all fourth floor common area attic space is freely accessible only by the owner of the unit in which … it is located;
“(c) all fourth floor common area attic space is inaccessible to owners other than the owner of the unit in which it is located;
“(d) all fourth floor common area attic space is of no general use to the membership at large, but only to the owner of the unit in which it is located; and
“(e) the maintenance and management of fourth floor common area attic space is a burden to the [LHA] because such space is located inside of the condominium, is generally inaccessible to the membership, and is of little use or benefit to the [LHA].”
Harvey filed a lawsuit against defendants alleging causes of action for trespass, breach of fiduciary duty and injunctive relief. Defendants moved for summary judgment. The trial court granted the motion, finding the language of the CC&R’s, “grants the Board broad authority and discretion to determine whether to allow an owner to exclusively use portions of the common area and this necessarily includes determining what portions are `nominal in area.'” The court found the Board acted within the scope of authority given to it under Article II, Section 2 of the CC&R’s “when it exercised its discretion in interpreting … [Section] 12 of the CC & R’s and its application to requests from homeowners to use their attic space.” The court deferred to the Board’s presumed expertise on the use of the attic space common area, based on undisputed evidence showing the “Board conducted a reasonable investigation, in good faith and with regards for the best interests of the community association and its members and exercised discretion within the scope of its authority.” The court also ruled directors who voted in favor of allowing limited use of the attic space common area had no conflict of [817] interest with the LHA merely because they owned units on the fourth floor of the project, and, in any event, the vote of all the homeowners overcame any such potential conflict.
Finally, the court concluded Harvey’s trespass claim failed because the attic space common area was being used by the fourth floor homeowners with the Board’s express permission. Because no causes of action remained against defendants, the court concluded Harvey was not entitled to injunctive relief. In a separate hearing, the court awarded defendants costs of suit in the amount of $10,220.46, and attorney fees in the amount of $116,794.30.[[FN. 1]]
I. DISCUSSION
A. Applicable Law and Standard of Review
CC&R’s are interpreted according to the usual rules for the interpretation of contracts generally, with a view toward enforcing the reasonable intent of the parties. (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 380-381) (Nahrstedt); 14859 Moorpark Homeowner’s Assn. v. VRT Corporation (1998) 63 Cal.App.4th 1396, 1410.) Where, as here, the trial court’s interpretation of the CC&R’s does not turn on the credibility of extrinsic evidence, we independently interpret the meaning of the written instrument. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.)
The language of the CC&R’s governs if it is clear and explicit, and we interpret the words in their ordinary and popular sense unless a contrary intent is shown. (Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19 Cal.App.4th 824, 829; see also Civ.Code, § 1644.)[[FN. 2]] The parties’ intent is to be ascertained from the writing alone if possible. (WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1709.) If an instrument is capable of two different reasonable interpretations, the instrument is ambiguous. (Badie v. Bank of America (1998) 67 Cal. App.4th 779, 798.) In that instance, we interpret the CC&R’s to make them lawful, operative, definite, reasonable and capable [818] of being carried into effect, and must avoid an interpretation that would make them harsh, unjust or inequitable. (Civ.Code, § 1643;[[FN. 3]] see also Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 961.)
B. The CC&R’s
The issue here concerns the interpretation of the LHA CC&R’s, including the language “nominal in area” in Article IV, Section 12 in connection with an owner’s exclusive use of the attic space common area.
Article II, Section 2 of the CC&R’s provides in part:
“[T]he activities and affairs of the [LHA] shall be managed and all corporate powers shall be exercised by and under the ultimate direction of the Board. [¶] Except as may be otherwise provided herein, the [LHA] acting through the Board and officers shall have the sole and exclusive right and duty to manage, operate, control, repair, replace or restore all of the Common Area or any portion thereof, together with the improvements….”
Article II, Section 3 provides in part:
“The Board shall have the right to adopt reasonable rules and regulations not inconsistent with the provisions contained in [these CC & R’s], and to amend the same from time to time relating to the use of the Common Area and the recreational and other facilities situated thereon by Owners and by their lessees or invitees….”
Article IV, Section 11 of the CC&R’s provides in part:
“No part of the Common Area shall be obstructed so as to interfere with its use for the purposes herein above permitted, nor shall any part of the Common Area be used for storage purposes (except as incidental to one of such permitted uses, or for storage of maintenance equipment used exclusively to maintain the Common Area or in storage areas designated by the Board).” (Emphasis added.)
As noted above, Article IV, Section 12 of the CC&R’s gives the Board authority to allow an owner to use exclusively common area provided such use is “nominal in area” and adjacent to the owner’s exclusive use area or living unit, and “provided further, that such use does not unreasonably interfere with any other Owner’s use or enjoyment of the Project.”
The CC&R’s make clear the Board has the “sole and exclusive” right to “manage” the common area (Art. II, § 2); to “adopt reasonable rules and [819] regulations not inconsistent with the provisions contained in [the CC&R’s]” relating to that use (Art. II, § 3); to designate portions of the common area as “storage areas” (Art. IV, § 11); and to authorize it to allow an owner to use exclusively portions of the common area “nominal in area” adjacent to the owner’s unit, provided such use “does not unreasonably interfere with any other owner’s use or enjoyment of the project.”[[FN. 4]] (Art. IV, § 12.)
C. The Rule of Judicial Deference Applies to the Board’s Decision Allowing Fourth Floor Homeowners to Use up to 120 Square Feet of Inaccessible Attic Space Common Area for Rough Storage
Harvey contends the grant of summary judgment was improper because the Board “had no discretion to overrule or modify the mandate of Art. IV, § 11 that the common area shall not be used for storage.” Harvey relies on Nahrstedt, supra, 8 Cal.4th 361 to support his position.
In Nahrstedt, the Supreme Court addressed the validity of a pet restriction under Civil Code section 1354, subdivision (a) contained in the CC&R’s prohibiting residents from keeping all animals (including cats and dogs) in their units except “domestic fish and birds.” (Nahrstedt, supra, 8 Cal.4th at p. 369, fn. 3.) Under Civil Code section 1354, subdivision (a), use restrictions in CC&R’s are “enforceable equitable servitudes, unless unreasonable….” The Nahrstedt court concluded section 1354’s presumption of reasonableness could only be overcome if the party challenging the restriction could prove the restriction: (1) “violates public policy”; (2) “bears no [reasonable] relationship to the protection, preservation, operation or purpose of the affected land”; or (3) “otherwise imposes burdens on the affected land that are so disproportionate to the restriction’s beneficial effects that the restriction should not be enforced.” (Nahrstedt, supra, 8 Cal.4th at pp. 380-382.) Applying that standard to the facts before it, the court in Nahrstedt held a complete ban on animals was not unreasonable and was therefore enforceable under Civil Code section 1354. (Nahrstedt, supra, 8 Cal.4th at p. 386.)
Harvey further argues the trial court erred when it relied on the other “leading Supreme Court case[ ] concerning condominium homeowner associations,” Lamden v. La Jolla Shores Clubdominium Homeowners Ass’n (1999) 21 Cal.4th 249 (Lamden). There, an owner sued the condominium community association for injunctive and declaratory relief, claiming the board of directors of the community association caused her unit to decrease in value because of the board’s decision to spot-treat [820] rather than fumigate plaintiffs unit for termite infestation. (Id. at p. 253.) In affirming the board’s action, the court concluded, “[w]here a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.” (Ibid.)
The Lamden court thus adopted a “rule of judicial deference to community association board decision making,” which “affords homeowners, community associations, courts and advocates a clear standard for judicial review of discretionary economic decisions by community association boards, mandating a degree of deference to the latter’s business judgments sufficient to discourage meritless litigation, yet at the same time without either eviscerating the long-established duty to guard against unreasonable risks to residents’ personal safety owed by associations that `function as a landlord in maintaining the common areas’ [citation] or modifying the enforceability of a common interest development’s CC&R’s [citations].” (Lamden, supra, 21 Cal.4th at pp. 253, 270.)
Harvey contends the trial court here erred when it relied on Lamden, and not Nahrstedt, asserting Lamden is distinguishable from the present case because the issue in Lamden involved the court’s review of a discretionary matter—maintenance and repair of a common area in connection with termite, control, whereas the issue here involves the “enforcement of the plain language of the governing documents.” Harvey thus argues “Lamden does not provide defendants support for their contention that the board of directors [of the LHA] had authority and discretion to override the prohibition in the CC&R’s against using common area for storage…. Lacking that discretion, defendants’ evidence regarding the reasonableness of their investigation, and the fairness of their decision to authorize the use of up to 120 square feet of the common area for storage, is beside the point.”
The CC&R’s do not, however, provide a blanket prohibition against the use of common area for storage, as Harvey suggests. Section 11 of Article IV expressly allows the Board to designate storage areas in the common area. Section 12 of Article IV further gives, the Board the authority and discretion to allow an owner to use exclusively the common area provided certain conditions are met, including the conditions the use be “nominal” and the use not “unreasonably interfere with any other Owner’s use or enjoyment of the Project.” The CC&R’s further grant the Board the exclusive right to manage, operate and control the common areas of the condominium development, providing additional support for the Board’s decision to interpret the CC&R’s to [821] allow up to 120 square feet of attic space common area to be used as storage area. (See Art. II, §§ 2 and 3.)
Unlike the situation in Nahrstedt where the challenged provision in the CC&R’s did not afford the board of the community association with any discretion (e.g., prohibiting all animals except “domestic fish and birds”), here the challenged provisions (Art. IV, §§ 11 and 12) provide the Board with the authority and discretion to allow fourth floor homeowners to use, under certain conditions, portions of the common area for rough storage. We thus conclude Lamden, and not Nahrstedt, governs here.[[FN. 5]]
Under the “rule of judicial deference” adopted by the court in Lamden, we defer to the Board’s authority and presumed expertise regarding its sole and exclusive right to maintain, control and manage the common areas when it granted the fourth floor homeowners the right, under certain conditions, to use up to 120 square feet of inaccessible attic space common area for rough storage.[[FN. 6]] The undisputed evidence in the record shows the Board conducted an investigation in 2002 regarding homeowners’ use of the fourth floor attic space, which had been ongoing for approximately 15 years; met with officials from the City to ensure the use of the attic space complied with building codes; consulted its insurance broker, who determined the “use of the fourth floor common area attic space in The Landing for storage purposes has not impacted The Landing insurance coverage, has not increased the premiums for The Landing condominium policy, and has not jeopardized the insurability [822] of The Landing premises”; agreed to conduct a “workshop” for homeowners to “discuss ideas to organize the restoration of the units that have violations”; prepared and revised a standard “permission form” signed by each fourth floor homeowner to ensure compliance with all provisions of The Landing Bylaws, the CC & R’s and governmental laws, rules and regulations; required each fourth floor homeowner seeking to use the attic space to obtain liability insurance coverage of $1 million; took steps to correct some minor noncompliance items discovered by the City in 2005 during the City’s annual inspection of the subject units to ensure Fire Code compliance; called a special election of all owners of The Landing to determine whether the Board should permit homeowners to use the fourth floor attic space common area for rough storage; and passed a resolution in 2006 transferring to the fourth floor owners the “exclusive right to use the common area attic space in that owner’s unit,” as purportedly allowed under newly-enacted Civil Code section 1363.07(a)(3)(E).
This undisputed evidence shows the Board, “upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members,” properly exercised its discretion within the scope of the CC & R’s when it determined the fourth floor homeowners could use exclusively up to 120 square feet of inaccessible attic space common area as rough storage.[[FN. 7]]
D. Summary Judgment Was Properly Granted on Harvey’s Fourth Cause of Action for Breach of Fiduciary Duty Against the Fourth Floor Directors
Breach of duty is usually a fact issue for the jury. (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 150.) Breach may be resolved as a matter of law, however, if the circumstances do not permit a reasonable doubt as to whether the defendant’s conduct violates the degree of care exacted of him or her. (Ibid.)
Harvey contends summary judgment was improper as to his fourth cause of action for breach of fiduciary duty against certain interested directors [823] because a triable issue of fact exists regarding whether those directors breached that duty to the LHA. Harvey argues the resolutions passed by the Board in 2002, 2003, 2004, 2005 and 2006, authorizing the limited or “nominal” use for storage of inaccessible fourth floor attic space in the common area, were invalid under Corporations Code section 7233 because “[i]n each instance the resolution failed to get the required three votes for adoption unless the votes of directors owning a unit on the fourth floor were counted.” To support this contention, Harvey asserts a trier of fact “could easily find defendants’ actions in authorizing the use of the attic space for storage were a thinly veiled maneuver to get themselves a valuable asset.”
However, under Corporations Code section 7233, subdivision (a)(3), a director of a nonprofit mutual benefit corporation may enter into a contract or transaction with the corporation if “the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified.”[[FN. 8]] Courts have interpreted the phrase “authorized, approved or ratified” in the nearly identical provision applicable to general corporation law (Corp.Code, § 310, subd. (a)(3))[[FN. 9]] to address the situation where board approval was based on a vote by an interested director (e.g., here, directors who voted in favor of allowing the attic space to be used for rough storage). (Sammis v. Stafford (1996) 48 Cal.App.4th 1935, 1943 (Sammis).) “If [the] phrase ‘authorized, approved or ratified’ was construed to mean only those approvals made without the interested director’s vote, then [Corporations Code section 7233, subdivision (a)(3)] [824] would be unnecessary. Section [7233(a)(2)] and section [7233(a)(3)] both permit interested director transactions where the board of directors approves the transaction. The sections differ, however, depending on whether the approval was obtained with or without the interested director’s vote and whether there was full disclosure. Where a disinterested majority approves the transactions and there was full disclosure, section [7233(a)(2)] applies, and the burden of proof is on the person challenging the transaction. [Citation.] Where, however, the approval was not obtained from a disinterested board vote, section [7233(a)(3)] applies and requires the person seeking to uphold the transaction to prove it was `just and reasonable’ to the corporation.” (Ibid.)
We conclude no conflict of interest existed here. As a threshold matter, there is no evidence in the record to support Harvey’s argument the fourth floor directors obtained a “material financial interest,” as required under Corporations Code section 7233, subdivision (a), when they voted in favor of allowing the attic space common area to be used for storage.[[FN. 10]] (See In re Hochberg (1970) 2 Cal.3d 870, 875 [“‘It is elementary that the function of an appellate court, in reviewing a trial court judgment on direct appeal, is limited to a consideration of matters contained in the record of trial proceedings, and that “[m]atters not presented by the record cannot be considered on the suggestion of counsel in the briefs”’”].)
Moreover, aside from whether the fourth floor directors obtained a “material financial benefit” under Corporations Code section 7233, subdivision (a), we nonetheless conclude subdivision (a)(2) and (a)(3) apply to validate the Board resolutions challenged by Harvey approving the use of the fourth floor attic space common area. Under subdivision (a)(2) of Corporations Code section 7233, where a disinterested majority approves the contract or transaction and there is full disclosure, the action of the board of the mutual benefit corporation is valid. Here, the evidence is undisputed in May 2003 the Board voted five to zero, which included three votes by directors who did not own a unit on the fourth floor, to approve the “permission form” adopted by [825] the Board setting forth the terms and conditions of the fourth floor homeowners’ use of the fourth floor attic space common area for storage. The permission form expressly stated the homeowners could use up to 120 square feet of that space. [[FN. 11]]
In light of the undisputed evidence in the record, and our deference to the Board’s exercise of discretion in determining the use of up to 120 square feet of fourth floor attic space for storage constitutes a “nominal” use, we have little difficulty concluding the material facts of the transaction were fully disclosed and/or known to the Board at the May 2003 meeting, when it approved the “permission form” allowing the use of that inaccessible common area. We further conclude this same undisputed evidence shows the transaction to be “just and reasonable” to the LHA, and Harvey has not met his burden to show otherwise.
Finally, we conclude the actions of the Board in connection with this storage issue were also valid under subdivision (a)(3) of Corporations Code section 7233, which applies to a vote of interested directors. (Sammis, supra, 48 Cal.App.4th at p.1943 [subdivision (a)(3) governs when approval was not obtained from a disinterested board vote].) According to Harvey, when the Board voted at meetings on December 17, 2002, April 16, 2003, July 15, 2003, April 21, 2004, July 20, 2005, and January 1, 2006, to authorize the “nominal” use of the fourth floor attic space common area for rough storage, it lacked a disinterested majority. The burden then shifted to the person seeking to uphold the validity of the transaction to prove it was “just and reasonable as to the corporation” at the time it was “authorized, approved or ratified.” (Corp. Code, § 7233, subd. (a)(3); Sammis, supra, 48 Cal.App.4th at p.1943.) Based on the undisputed evidence, we conclude defendants met their burden to show the “transaction” between the interested directors and the LHA was “just and reasonable” to the LHA when the Board voted at the various meetings to approve the “nominal” use of the fourth floor attic space for rough storage, and Harvey has adduced no evidence to show otherwise. [826]
DISPOSITION
The judgment is affirmed. Defendants are entitled to their costs on appeal.
McConnell, P. J., and McIntyre, J., concurred.
[FN. 1] Harvey has not appealed the award of costs and attorney fees in favor of defendants.
[FN. 2] Civil Code section 1644 provides: “The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.”
[FN. 3] Civil Code section 1643 provides: “A contract must receive such [an] interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.”
[FN. 4] Because it is undisputed the attic space common area is accessible only to the unit adjacent to that area, there is no dispute here that the fourth floor homeowners’ use of the attic space common area “unreasonably interfere[s] with any other owner’s use or enjoyment of the Project.”
[FN. 5] In Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863, 875, this court applied Lamden’s rule of judicial deference to community board decision-making not involving “ordinary maintenance decisions,” observing Lamden “also reasonably stands for the proposition that the [community association] had discretion to select among means for remedying violations of the CC & R’s without resorting to expensive and time-consuming litigation….” Although the instant case, like Haley, also does not involve a per se maintenance decision, we nonetheless conclude the reasoning of Lamden applies here as well, where the evidence shows the Board, after undertaking a reasonable investigation and acting in the best interests of the LHA, made a “detailed and peculiar economic decision[ ]” allowing fourth floor homeowners to use up to 120 square feet of inaccessible attic space common area for rough storage. (Lamden, supra, 21 Cal.4th at p. 271; see also Nahrstedt, supra, 8 Cal.4th at p. 374 [“[g]enerally, 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”].)
[FN. 6] Although, under Lamden, we defer to the Board’s authority and expertise regarding the “nominal” use of the common area for storage, we note the total area approved for attic storage for all fourth floor units combined is 2,760 square feet (e.g., 23 units × 120 square feet), or a little more than 1 percent of the 265,479 total building area, or approximately 3.5 percent of the approximately 80,000 total square feet common area. As a matter of contract interpretation under our independent standard of review, we have little difficulty concluding the use for storage of up to 120 square feet of inaccessible attic space constitutes a “nominal” use of the common area within the meaning of Article IV, Section 12.
[FN. 7] Because we conclude the Board acted within its authority under the CC&R’s and defer, based on the undisputed evidence in the record, to the Board’s economic decision to allow the homeowners to make limited or “nominal” use of the inaccessible fourth floor attic space, we further conclude summary judgment was properly granted on Harvey’s first cause of action for trespass against the defendant homeowners. (See Civic Western Corp. v. Zila Industries, Inc. (1977) 66 Cal. App.3d 1, 16-17 [“Where there is a consensual entry [on the property of another], there is no [trespass], because lack of consent is an element of the wrong”].) For similar reasons, Harvey’s fifth cause of action for injunctive relief, which seeks to enjoin the fourth floor homeowners from using the attic space common area, was also properly disposed of on summary judgment.
[FN. 8] Section 7233 provides: “(a) No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any domestic or foreign corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because such director or directors or such other corporation, business corporation, firm or association are parties or because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if: (1) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the members and such contract or transaction is approved by the members (Section 5034) in good faith, with any membership owned by the interested director not being entitled to vote thereon; (2) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified; or (3) As to contracts or transactions not approved as provided in paragraph (1) or (2) of this subdivision, the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified.”
[FN. 9] Indeed, the general corporation law is the source of the nonprofit corporation law. (See Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 525.)
[FN. 10] The term “material financial interest” is not defined in the code. However, courts generally find such an interest when a person has an expectation of pecuniary gain. (See, e.g., Michael v. Aetna Life & Casualty Ins. Co. (2001) 88 Cal.App.4th 925, 942-943.) Harvey claims use of the attic space common area for storage is a “valuable asset,” but this is not the test under Corporations Code section 7233, subdivision (a). Moreover, several of the directors of the LHA who reside on the fourth floor may question whether their use of the common area attic space is a “valuable asset,” particularly after being named by Harvey as defendants in this lawsuit.
[FN. 11] It is not entirely clear from the record which of the various drafts, if any, of the permission form included in the record ultimately became the “final” form approved and used by the Board. (See, e.g., Exhibits R, S, T, U and V.) For present purposes, however, it matters little, inasmuch as in each of the drafts the Board specifically noted the homeowners could use as rough storage up to 120 square feet of the fourth floor attic space appurtenant to their units.
Ritter & Ritter v. Churchill Condominium Association
[Maintenance; Board Deference] The deference afforded to HOA boards covers only “ordinary” maintenance; the “Lamden Rule” only insulates directors from liability, not the HOA.
Minton Ritter; Feldsott & Lee, Stanley Feldsott and Martin L. Lee for Plaintiffs and Respondents.
Hillel Chodos; Michael A. Chodos and Rehema Rhodes Defendants and Appellants.
OPINION
COOPER, P. J.-
INTRODUCTORY INFORMATION
BACKGROUND INFORMATION
The Parties
The Churchill is a 110-unit, 13-story condominium building in the “Wilshire Corridor” in the Westwood area of Los Angeles California. Defendant and appellant (The Churchill) is a California Non-Profit Mutual Benefit Corporation. The individual defendant and appellant directors of The Churchill are Tibor Breier, Martha Brown, Theodore Nittler, Ruth Hochberg and Basil Anderman [109] (“the Board”). [FN. 1] Each of the individual directors is also an owner in the building and receives no compensation for their services as director. Minton and Roberta Ritter, are brother and sister. The Ritter & Ritter, Inc., Pension and Profit Plan, and Ritter and Ritter Family Investment Trust, purchased adjoining units [3H in 1995 and 3J in 1998] in The Churchill. Roberta Ritter is the trustee of both trust entities and a plaintiff in this litigation. [FN. 2]
The Churchill Condominium
The Churchill was built in 1960; with construction completion in 1962. Built originally as an apartment complex, it was converted into a condominium association in 1976, at which time its Declaration of Establishment of Covenants, etc. (hereinafter “CC&R’s”) was recorded. The CC&R’S were followed with House Rules documents. Together these documents form the governing documents for the organization.
The Churchill is constructed of a series of horizontal concrete slabs attached to and supported by a rectangular structure of steel girders and beams. The ceiling of each unit is actually a “drop ceiling” below the next concrete slab. Above the “drop ceiling” and between it and the concrete slab above is an area referred to as the “plenum.”
The various pipes, conduits and ducts needed to serve each unit run up and down central shafts in the building, then branch out sideways through this “plenum” area, and then go up into each unit through slab penetrations (i.e. hole) made in the concrete slab during the building’s original construction.
The slab penetrations are holes in the concrete that range in size from six inches in diameter to twelve by twelve inch holes. These “slab penetrations” were created at the time of the initial construction of the building. The purpose of the slab penetrations was to allow space for passage by the vertical plumbing and piping which runs throughout the structure. The original architectural construction plans and the city permit requirement at the time called for these slab penetrations to be “fire proofed.” However, this did not occur and the Churchill’s original construction (including these slab penetrations) passed all applicable building inspections and The Churchill duly received its Certificate of Occupancy in 1962. The Churchill has never received any order to change or upgrade these slab penetrations. Existing Los Angeles building codes allow unfilled floor penetrations to remain as an existing, non-conforming condition. [110]
The dispute in this case arose over the existence of these slab penetrations and the duty, if any, of The Churchill to repair the condition that the penetrations were not properly finished during the initial construction of the building.
STATEMENT OF THE CASE
In 1998, the Ritters complained to appellants about smoke odors in Unit 3H; a unit which the Ritters never remodeled. In 1999, the Ritters purchased a second unit, 3J and discovered that this unit had similar odor problems. After bringing this issue to the attention of The Churchill both before and after unit 3J was remodeled, the manager, Bill Brick, told the Ritters that the odor problems originated in their air conditioning unit and that their air conditioning unit had to be replaced. The Ritters replaced the air conditioning unit, but the new unit provided no relief from the odors. The Churchill’s management responded to the Ritters’ continued complaints by stating that there was no more that could be done and that no other homeowners complained of similar problems. [FN. 3]
In late 2003, a new tenant in the Ritter’s unit 3J complained about cigarette odors in the unit. The Ritters demanded that The Churchill identify the source of the odors and abate it. This demand triggered a series of investigations by the parties and the Board decision which is the subject of this lawsuit. Extensive investigation and communication between the parties ensued.
The Ritters hired their own expert engineer who conducted his own investigation. He reported that the source of the odors was the slab penetrations and offered his opinion that these holes constituted a fire hazard and should be filled or fire stopped.
The Board hired a professional engineer and a ventilation system expert to investigate the source of the problem. Their expert reported that the problem was caused, in part, by the slab penetrations in the Ritter’s unit 3J’s floor. According to the expert, these holes allowed odors to travel between the 2J unit below, and the Ritter’s unit 3J. The Churchill’s engineer also indicated slab penetrations posed a significant fire safety risk. [FN. 4]
After receiving its expert’s report and conducting its investigation and communication with the Ritters, the Board concluded based on the 1999 Building Code the Ritters should have filled any floor penetrations exposed [111] during their remodel, and that doing so now would abate the odor problem. The Board believed that the Ritters were responsible for making the holes in the slabs and therefore they were also responsible for fixing them and would be expected to enter the 2J unit below, pay for the homeowner to stay in a hotel during the repairs and make all necessary repairs within 30 days.
The Ritters demanded a hearing before the Board. They also demanded that Board and Association do the work to fill the slab penetrations adjacent to their own unit and additionally repair all penetrations throughout the entire building.
The Board agreed to the Ritters’ request and on March 9, 2004 held a formal adjudicative hearing of the Ritters’ protest and demands. At the hearing, the Ritters were represented by counsel and submitted evidence and witness testimony. After considering all such materials as well as the report of their own expert and the advice of their counsel, the Board concluded: 1) that the Ritters’ remodel in 1999 “triggered” the obligation to fill the floor penetrations adjacent to their units, which obligation came to light only when their tenant complained of odors in 2003; 2) The Churchill did not have a legal obligation to fill such holes because they were “existing, non-conforming” conditions; 3) The Churchill would not at this time choose to undertake the expense of making the corrections; and 4) the Ritters were required by law and by the CC&R’s to fill the penetrations adjacent to their own units and would be ordered to do so. [FN. 5]
The Board also imposed daily fines of $200 per day on the Ritters for failure to fill the holes adjacent to their own units, but expressly indicated that all such fines would be waived if the Ritters filled the holes within 30 days after the order. The Churchill’s Board notified the Ritters of their decision in writing. It attached a bid from a contractor offering to complete the work adjacent to their units for approximately $2,700 per unit. The Ritters declined the Board’s offer.
The Current Litigation
On May 17, 2004, the Ritters sued the Churchill and each of its then-Directors individually. The Ritters’ First Amended Complaint set forth causes of [112] action for Nuisance, Negligence, Breach of Fiduciary Duty, Breach of the CC&R’s, Breach of the Covenant of Good Faith and Fair Dealing, Permanent Injunctions and Declaratory Relief. They sought financial damages due to odor intrusion into their unit. They also sought an injunction requiring the Churchill to fill all slab penetrations throughout the building, at association expense. They sought damages of at least $200,000 for diminution in value to their units as a result of the unfilled slab penetrations.
The Churchill cross-complained to require the Ritters to fill the penetrations adjacent to their units and for recovery of the $200 daily fines imposed for their failure to do so. By the time of trial, these daily fines had amounted to $77,000.
The matter went to trial on May 2, 2005 and concluded on May 19, 2005. [FN. 6] The legal causes of action were presented to a jury and the equitable causes of action were presented to the trial judge. The legal causes of action presented to the jury included: claims that the Churchill has breached the CC&R’s, acted negligently and breached their fiduciary duty against the Ritters. General Verdicts and Special Interrogatories were submitted to the jury. The jury was instructed and began their deliberations. The jury returned their verdict on May 20, 2005.
The jury returned a General Verdict that stated:
“On the Ritter plaintiffs’ claim for breach of the CC&Rs
“We find in favor of the Ritter plaintiffs and against The Churchill defendants . . .
“On the Ritter plaintiffs’ claim for breach of fiduciary duty
“We find in favor of the Ritter plaintiffs and against The Churchill defendants . . .
“On the Ritter plaintiffs’ claim for negligence
“We find in favor of the Ritter plaintiffs and against The Churchill defendants.
“On The Churchill Cross-Complaint . . .[113]
“We find in favor of cross-defendants the Ritters and against cross-complainant The Churchill.”
Special Interrogatories were submitted to the jury and the jury returned the forms with the following responses: [FN. 7]
“We answer the questions submitted to us as follows:
“1. Did The Churchill defendants breach any provisions of the CC&R’s?
“The Churchill Yes
“Basil Anderman No
“Tibor Breier No
“Martha Brown No
“Ruth Hochberg No
“Edwin Nittler No
“2. If so, what provisions?
“5.1(3) – 5 and 5.1(6)
“3. If the answer to Number l is “Yes,” were the Ritter plaintiffs harmed by the Churchill defendants?
“Yes
“4. What are the Ritter plaintiffs’ damages?
“Economic loss:$4,620
“5. Were The Churchill defendants negligent?
“The Churchill Yes
“Basil Anderman No
“Tibor Breier No
“Martha Brown No
“Ruth Hochberg No
“6. If the answer to Number 5 is yes, was The Churchill defendant’s negligence a substantial factor in causing harm to plaintiffs? [114]
“Yes
“7. Were the Ritter plaintiffs negligent?
“Yes
“8. Was the Ritter plaintiffs’ negligence a substantial factor in causing “harm?
“Yes
“9. What percentage of responsibility for the Ritter plaintiffs’ harm do “you assign to the following?
“The Ritter Plaintiffs 25%
“The Churchill 75%
[¶] . . . [¶]
“Total 100%
“10. What amount of fines do you award against the Ritter cross-defendants, if any?
“$0.”
The court tried the equitable causes of action and on October 3, 2005, the court issued its final judgment. The verdict form stated:
“VERDICT FORM”
“1. Plaintiffs Ritter & Ritter, Inc. Pension and Profit Plan, Roberta Ritter Trustee, Roberta Ritter Trustee of the Ritter Family Investment Trust dated January 13, 1986, and cross-complainants/cross-defendants Ritter & Ritter, Inc. Pension and Profit Plan, Roberta Ritter Trustee, Roberta Ritter Trustee of the Ritter Family Investment Trust dated January 13, 1986, and Roberta Ritter, individually, shall recover from the defendants the sum of $____ as and for their attorney fees, and the sum of $____ as and for their costs.
“2. The individually named directors did not breach their fiduciary duty.
“3. Pursuant to Code of Civil Procedure § 1060, the court will and does retain ongoing jurisdiction to enforce the above recited equitable and/or injunctive decrees (to wit, Paragraph 2 above).” [115]
Post Trial Proceedings
After trial, but prior to the court’s issuance of the judgment herein, the following motions were heard by the trial court: l) The Churchill Defendants Motion for a Minute Order Entering Dismissal of Ritters’ First, Second and Sixth Causes of Action; 2) Churchill Defendant’s Motion for Judgment Notwithstanding the Verdicts; 3) Ritter’s Motion for Reconsideration and Revocation of order made July 15, 2005 that Ritters are to Pay for Firestopping on Common Area Adjacent to Units 3H and 3J and/or Request for Court on its Own Motion to Reconsider Same. On August 24, 2005 the court granted Ritter’s motion for reconsideration and clarified it order to provide that defendant, The Churchill, is to pay at its sole cost and expense for the cost of fire stopping the slab penetrations adjacent to the Ritter plaintiff’s units 3H and 3J.
On July 15, 2005, the court issued an order following arguments on Churchill defendants’ Motion For Judgment Notwithstanding the Verdicts, as follows: “The motion — so to the extent that you’re requesting judgment notwithstanding the verdict, that’s denied as to the general verdict. [¶] I will, however, grant your motion to the extent that it finds each one of the individual named persons, directors, that — the judgment will be they did not breach a fiduciary duty.”
The trial court filed its written judgment on October 3, 2005, which stated:
“On July 13, 2005, the Court ruled thereon in favor of the plaintiffs and against defendants, and each of them as follows: [¶] 1) Within thirty days after entry of the judgment, The Churchill Condominium Association and its Board of Directors shall give written notice to all of the members of the Churchill Condominium Association . . . . [¶] 2) The Association is ordered to fire stop and seal all of the slab open penetrations adjacent to plaintiffs’ units, to wit: 3H and 3J, and the Association’s sole cost and expense, within sixty days of entry of the judgment. [¶] 3) All fire stopping is to be done with appropriate fire stopping material with a two hour fire rating. [¶] 4) The Board of Directors is ordered to call a special meeting of the members with suitable experts in attendance to explain to the membership the nature and extent of these slab penetrations, the fire and safety hazard posed by lack of fire stopping, and the fact that the ceiling and fire stopping of the slab penetrations is an Association responsibility pursuant to the provisions of the Declarations of Covenants, Conditions and Restrictions.”
The trial court denied the Ritters’ request for a mandatory injunction requiring The Churchill and the Board to fill all the slab penetrations throughout the building; instead ordered them to fill the penetrations adjacent to the Ritters’ two units. The trial court ordered The Churchill and the Board give all the members [116] notice of the existence of the slab penetrations and of the fact that they represent a fire hazard; and call a General Meeting of the Homeowners Association, with experts in attendance, to explain the situation to the members and to obtain their input.
The Board promptly complied with the injunctive order. The penetrations next to the Ritters’ units were filled and a General Meeting was held. At the meeting, the members voted overwhelmingly not to incur the cost to fill the building’s slab penetrations. The vote was 78 against to 3 in favor. [FN. 8]
The Churchill and the Directors timely filed their Notice of Appeal and Notice of Election on November 29, 2005 and December 9, 2005, respectively.
CONTENTIONS ON APPEAL [FN. 9] and STANDARD OF REVIEW
We elect to restate appellant’s statement of contentions as presenting the following issues: 1) the general verdict and special findings are inconsistent and irreconcilable and the special findings control; 2) the CC&R’s alone determine the rights and obligations between the parties; 3) the trial court erred in the application of the rules set forth in Lamden v. LaJolla Shores Clubdominium Homeowner’s Assn. (1992) 21 Cal.4th 249; the trial court erred in instructions submitted to jury; 5) the trial court erred in ordering the injunction; and 6) the trial court erred in determining the Ritters were the prevailing parties. [FN. 10] [117]
In reviewing the evidence on appeal, all conflicts must be resolved in favor of the judgment, and all legitimate and reasonable inferences indulged in to uphold the judgment if possible. When a judgment is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the judgment. When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court. (Western States Petroleum Assn. v. Superior Court (1995) 9 Cal.4th 559, 571;Crawford v. Southern PacificCo. (1935) 3 Cal.2d 427, 429.)
To the extent that the contentions on appeal raise the need to review the sufficiency of the evidence to support a jury verdict and the associated judgment, the court of appeal is ordinarily limited to review of whether the judgment is supported by substantial evidence. (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632.) “When considering a claim of insufficient evidence on appeal, we do not reweigh the evidence, but rather determine whether, after resolving all conflicts favorably to the prevailing party, and according the prevailing party the benefit of all reasonable inferences, there is substantial evidence to support the judgment.” (Scott v. Pacific Gas&Electric Co. (1995) 11 Cal.4th 454, 465, disapproved on another ground in Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 352, [FN. 17].) We review all legal issues de novo. The existence of duty is a question of law to be decided by the court. (Sharon P. v. Arman, Ltd. (1999) 21 Cal.4th 1181, 1188.)
DISCUSSION
General Principals Relating to Condominium Associations [FN. 11]
To provide context for the following discussion, we begin with some basic legal principles. First among these is an understanding of the general nature [118] of a non-profit homeowners association; next is the nature of the liability of such an association and its directors.
[1] Under California law, a “condominium project” is a form of common interest development. A “condominium” is “an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit . . . .” (§ 1351, subd. (f).) Unless the governing documents provide otherwise, the common area of a condominium project is owned by the owners of the separate interests as tenants in common. In addition to the combined ownership of the two estates enumerated above, the major characteristics of a condominium include an agreement among the unit owners regulating the administration and maintenance of the property. The agreement is reflected in the governing documents of the association; which includes the declaration and any other documents, such as bylaws, operating rules of the association, articles of incorporation which govern the operation of the common interest development. (§1351, subd. (j).) The development’s restrictions should be contained in its recorded declaration, but may also be contained in an association’s internal rules or bylaws. [FN. 12] (§§ 1353, 1354.) The CC&R’s bind all owners of separate interests in the development. [FN. 13]
[2] After its creation, a common interest development is managed by an association [aka homeowner’s association.] (Civ. Code § 1363.) Associations are responsible for the maintenance of the development’s common areas. An association can be unincorporated or incorporated. (Civ. Code § 1363, subd. (a).) Most associations are incorporated under the Nonprofit Mutual Benefit Corporation Law. (Corp. Code §§ 7110-8910.) Unless the governing documents provide otherwise, an incorporated or unincorporated association may exercise the powers granted to a nonprofit mutual benefit corporation. (Civ. Code § 1363, subd. (c).) The association is governed by a board of directors and the powers of the directors are enumerated in the development’s governing documents. State and federal statutes as well as common law impose obligations on the directors.[119]
The Association’s Duty of Care
[3] The existence of a duty “is not an immutable fact, but rather an expression of policy considerations leading to the legal conclusion that a plaintiff is entitled to a defendant’s protection.” (Ludwig v. City of San Diego (1998) 65 Cal.App.4th 1105, 1110.) Courts have repeatedly declared the existence of a duty by landowners to maintain property in their possession and control in a reasonably safe condition. (Rowland v. Christian 69 Cal.2d 108,119; Vasquez v. Residential Investments, Inc. (2004) 118 Cal.App.4th 269.) The duty is described as follows: “a landlord must act toward his tenant as a reasonable person under all of the circumstances, including the likelihood of injury, the probable seriousness of such injury, the burden of reducing or avoiding the risk, and his degree of control over the risk-creating defect,” (Brennan v. Cockrell Investments, Inc. (1973) 35 Cal.App.3d 796, 800-801; Golden v. Conway (1976) 55 Cal.App.3d 948, 955.)(1968)
In addition to this potential basis for liability, a homeowners association is also potentially liable for any violation of statute, administrative code regulation, or building code provision relating to the condition of the property. In such situations, failure to comply with the statutory standard may give rise to a presumption of negligence on his part. (Gallup v. Sparks-Mundo Engineering Co. (1954) 43 Cal.2d 1, 9; Tossman v. Newman 37 Cal.2d 522, 525; Williams v. Lambert (1962) 201 Cal.App.2d 115, 119; Alarid v. Vanier (1958) 50 Cal.2d 617, 621.) Such presumption of negligence may arise whether the law violated is a state statute, a safety order, an administrative regulation, or a local building code provision. [FN. 14] (1951)
[4] Traditional tort principles impose on landlords, including homeowner associations, that function as a landlord in maintaining the common areas of a large condominium complex, a duty to exercise due care for the residents’ safety in those areas under their control. (See, e.g., Kwaitkowski v. Superior Trading Co. (1981) 123 Cal.App.3d 324, 328; O’Hara v. Western Seven Trees Corp. (1977) [120] 75 Cal.App.3d 798, 802-803; Kline v. 1500 Massachusetts Avenue Apartment Corp. (D.C. Cir.1970) 439 F.2d 477, 480-481; Scott v. Watson (1976) 359 A.2d 548, 552; Sevigny v. Dibble Hollow Condominium Assn., Inc. (2003) 76 Conn.App. 306.) California cases hold that a homeowners association is liable to a member who suffers injury or damages as a result of alleged negligence of the association in failing to maintain a common area adequately. In the leading case of White v. Cox (1971) 17 Cal.App.3d 824, the court of appeal held that a condominium owner could sue the unincorporated association for negligently maintaining a sprinkler in a common area of the complex. In so holding, the court recognized that the plaintiff, a member of the unincorporated association, had no “effective control over the operation of the common areas . . . for in fact he had no more control over operations than he would have had as a stockholder in a corporation which owned and operated the project.” (Id. at p. 830.) Since the condominium association was a management body over which the individual owner had no effective control, the court held that the association could be sued for negligence by an individual member. An assessment of the individual arrangements for each condominium association would be required in order to asses the issue of liability. The Supreme Court concluded “that a condominium possesses sufficient aspects of an unincorporated association to make it liable in tort to its members.” (Ibid.) The Whit ecase was reaffirmed and cited with approval by the Supreme Court in Frances T. v. Village Green Owners Assn. (1986) 42 Cal 3d 490.)
[5] There may be other possible theories for liability in addition to the association’s negligence. One possibility is the association’s fraudulent misrepresentation with regard to the safety of its common areas. Another possibility is breach of contract when the plaintiff was a member of the association and the association failed to comply with maintenance of safety provision in the development’s declaration or bylaws. (See e.g., Murphy v. Yacht Cove Homeowners Ass’n (S.C. 1986) 345 S.E.2d 709.)
The Individual Director’s Duty of Care
[6] A corporate officer or director, like any other person, owes a duty to refrain from injuring others. (Frances T. v. Village Green Owners Assn., supra, 42 Cal.3d at p. 505;PMC, Inc. v. Kadisha (2000) 78 Cal.App.4th 1368, 1381.) Consequently, directors are jointly liable with the corporation and may be joined as defendants if they personally directed or participated in the tortious conduct. (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595; [121] Dwyer v. Lanan & Snow Lbr. Co., (1956) 141 Cal.App.2d 838, 841.) [7] However, California has adopted the rule that while a condominium association may be liable for its negligence, a greater degree of fault is necessary to hold unpaid individual condominium board members liable for their actions on behalf of condominium associations.
The Lamden “Judicial Deference” Rule [FN. 15]
The California Supreme Court has adopted a “judicial deference rule” toward the decision making of directors which is expressed in Lamden v. LaJolla Shores Clubdominium Homeowner’s Assn., supra, 21 Cal.4th 249 (Lamden); one of the leading cases in this area. In Lamden, the plaintiff was a nonresident owner of a residential unit in a condominium project that suffered from termite infestation. After extensive investigation, including consultations with contractors and pest control experts, the association’s board of directors decided to respond to the termite problem with spot treatment of known infested areas, rather than tenting and fumigating the buildings, which would have required the temporary relocation of all residents. Plaintiff challenged the board’s decision, claiming that the termite eradication program adopted by the board diminished the value of her unit by failing to adequately repair the damage. The trial court determined that the directors of the defendant association had acted on reasonable investigation, in good faith, and in a manner the board believed to be in the best interests of the association and its members as a whole.
The Court of Appeal reversed and ruled that managerial decisions of association board were subject to judicial review to determine whether the board had satisfied an objective duty of reasonable care in repairing and maintaining the development’s common areas. The association appealed to the Supreme Court, arguing that the trial courts should be entitled to intervene only in matters involving the exercise of discretion by governing [122] boards when it can be demonstrated that the board has acted irrationally, in bad faith, or in an otherwise arbitrary or capricious manner.
[8] However, the Supreme Court adopted a ruled it termed as analogous to the business judgment rule: “where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.” (Lamden, supra, 21 Cal.4th at p. 265.) The Supreme Court adopted the association’s position, at least as far as ordinary managerial decisions are concerned: “Common sense suggests that judicial deference in such cases as this is appropriate, in view of the relative competence, over that of courts, possessed by owners and directors of common interest developments to make the detailed and peculiar economic decisions necessary in the maintenance of those developments.” (Id., at pp. 270- 71.)
The Lamden decision was restricted to “ordinary” decisions involving repair and maintenance actions that were clearly “within the board’s discretion under the development’s governing instruments. The case gives no direction as to what standards courts should apply when faced with a challenge to a board action involving an extraordinary situation (e.g., major damage from an earthquake) or one not pertaining to repair and maintenance actions, e.g., a decision to deny approval to an improvement project desired by an owner.” (Sproul & Rosenberry, Advising California Condominium and Homeowners Associations (Cont.Ed.Bar May 2002 Update) §2:16, pg. 23.) The Lamden court also noted that the rule of judicial deference to board decision-making can be limited in certain circumstances; (e.g. by the association’s governing documents, when the association has failed to enforce the provisions of the CC&R’s.) (See also, Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361; Dolan-King v. Rancho Santa Fe Assn. (2000) 81 Cal.App.4th 965; DeBaun v. First W. Bank & Trust Co. (1975) 46 Cal.App.3d 686.)
California Statutory Business Judgment Rule
[9] California also has a statutory business judgment rule. Corporation Code Section 7231, subdivision (a) provides, in relevant part, ” [a] director shall perform the duties of a director . . . in good faith, in a manner such director believes to be in the best interests of the corporation and with such care . . . as an ordinarily, prudent person in a like position would use under [123] similar circumstances.” Subdivision (b) provides that the director is entitled to rely on information, opinions, and reports presented by certain specified persons. Finally, subdivision (c) provides, in relevant part, “[a] person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person’s obligations as a director. . . .” (Italics added.) The rule provides further: “no cause of action for damages shall arise against, any volunteer director . . . based upon any alleged failure to discharge the person’s duties as a director” of a nonprofit organization if that person: (1) performs the duties of office in good faith; (2) performs the duties of office in a manner believed to be in the best interests of the corporation; and (3) performs the duties of office with such care, including reasonable inquiry, as an ordinary prudent person in a like position would use under similar circumstances.” (Corp. Code § 7231.5, subd. (a).) The business judgment rule “sets up a presumption that directors’ decisions are based on sound business judgment. This presumption can be rebutted only by a factual showing of fraud, bad faith or gross overreaching.” (Eldridge v. Tymshare, Inc. (1986) 186 Cal.App.3d 767, 776.) The business judgment rules does not create a presumption which applies when a court is evaluating the independence of the committee or whether the committee acted in good faith in the first instance. (Will v. Engebreton & Co. (1989) 213 Cal.App.3d 1033, 1043, citing Rosenthal v. Rosenthal (Me. 1988) 543 A.2d 348, 353.)
Application of Principles to Current Dispute
In this case, appellant’s contentions regarding liability arise principally from the fact that the jury in its responses to the special interrogatories found no liability on the part of the individual directors. However, as described above, the same jury also found the Churchill entity to be liable. Because of this alleged discrepancy, appellant posits, that the jury’s special findings are inconsistent and irreconcilable with the general verdict and as a result the trial court should have harmonized these results by directing a verdict for the Churchill. We disagree. Appellant’s initial proposition reflects a fundamental misunderstanding of the general principles presented above.
[10] We find no inconsistency between the special findings and the verdict. The liability of the Churchill is separate and distinct from the personal liability of the directors. It is legally possible to have one without the other. First, the association as an entity can be separately liable for its actions. As a separate entity, an unincorporated association owes a duty of care to its members as long as the membership itself is not responsible for the existence of the dangerous condition. Therefore, a member of the association can recover damages from the association which result from a dangerous [124] condition negligently maintained by the association in the common area. The fact that the actual management decisions are made and carried out by the board of directors does not alter this fact. In the same manner, the association may also be liable for property damages caused by its negligent maintenance of the common area. Further, under well accepted principles of condominium law, a homeowner can sue the association for damages and for an injunction to compel the association to enforce the provisions of the declaration and can sue directly to enforce the declaration.
Appellants contend that the trial court was required to defer to the Board’s good faith decision “whether to undertake building improvement projects.” We are unable to locate any authority to support this broad assertion and regard it as a suggested, but unwarranted expansion of appellant’s reliance on the “judicial deference” theory — designed to protect board directors from personal liability for their decisions, made in good faith, but ultimately incorrect.
[11] In a related contention, appellants assert that the trial court’s “injunctive order is manifestly erroneous and unsupported by any findings of wrongdoing.” This assertion compounds the misunderstanding reflected above. This argument is that the trial court, as finder of fact in the court trial on the injunction and declaratory relief counts, is somehow bound by the special findings of the jury as to the personal liability of the board of directors of the Churchill on the legal causes of action. This does not follow. Our inquiry on appeal regarding the injunctive relief is whether there was substantial evidence to support the implied findings made by the trial judge in his ruling on those issues. The evidence from the record is: the slab penetrations constitute a deviation from the original architectural plans for the construction of the building; the penetrations exist in violation of current building requirements; and, the presence of these slab penetrations constitutes a fire hazard — particularly in a high rise structure such as the Churchill. This provided substantial evidence for the trial court to consider and injunctive relief was appropriate. The fact that the directors were named individually in the judgment on the injunctive relief is not a reflection of their individual liability on the negligence or other counts; rather, it reflects the simple reality that an entity acts through its board and/or agents and in order to secure compliance with the judgment, those individuals are properly included within its scope and directions.
We do not agree with appellants’ assertion that the trial court’s actions interfere with the rights, duties and discretion of the Churchill Board. The trial court is simply performing its obligation to resolve legal disputes between parties with legitimate grievances over which the court has jurisdiction. If appellants’ position were correct, cases of this variety would end in [125] every instance prior to trial, because the court would be constrained from acting whenever the evidence indicated that the dispute arose in the context of a disagreement over the board’s proper fulfillment of its responsibilities. We also find the trial court did not misunderstand the situation and, as described above, did not submit conflicting legal theories to the jury or to properly instruct them on the rights and duties of the Churchill and its directors.
[12] The rule of judicial deference set forth in the Lamden case provides protection from personal liability for the individual directors of a non-profit homeowners association. It does not follow and is not true that the same rule of judicial deference will also automatically provide cover to the entity itself. There is a difference between the standard of care, which is a reflection of the duty expected of decision makers, and the judicial deference rule, which is a modified standard of review for determining whether the actual decisions-makers will be held liable for their poor decisions. Standards of care continue to have value in remedial context, such as injunction and rescission cases, as opposed to actions for monetary damages against directors as individuals. Consequently, we also hold that the trial court did not err in its instructions to the jury and the jury did not err in its results.
ATTORNEY FEES [FN. 16]
Prevailing Party Determination
Ruling on the post-trial attorney fee motions, the trial court found that the Ritters were the “prevailing parties” and awarded them $531,159, including essentially 100% of all the attorney fees, expert witness fees and costs of suit incurred by the Ritters throughout the proceedings. It denied and rejected the Churchill’s and the Directors’ request for their approximately $775,000 in defense fees and costs. It denied the individual Directors’ request for their fees and costs because, even though they had been found not personally liable by the jury, the trial court included them in its limited injunction. In their final contention, appellants argue that the trial court’s conclusion that the Ritters were the “prevailing parties” entitled to recover their entire $531,159 in attorney fees and costs was erroneous and must be reversed. Appellants contend that the Ritters were not the prevailing parties because they lost in their effort to force the Churchill to fill all the slab [126] penetrations throughout the building, which was the main reason the litigation become so intense and the Churchill’s main objective in defending it.
[13] The parties here apparently that agree that the Churchill CC&R’s allowed for attorney fees and costs in disputes brought to “enforce the terms, covenants, conditions and/or restrictions of the Declaration . . . .” A condominium owner who successfully sued homeowners association for breach of contract for failure to maintain common areas was the prevailing party entitled to recover attorney fees under attorney fee provision contained in the covenants, conditions and restrictions. (Arias v. Katella Townhouse Homeowners Assn. Inc. (2005) 127 Cal.App.4th 847.) “[I]n deciding whether there is a ‘party prevailing on the contract,’ the trial court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by ‘a comparison of the extent to which each party ha[s] succeeded or failed to succeed in its contentions.’ [Citation.] [¶]. . . [¶] We agree that in determining litigation success, courts should respect substance rather than form, and to this extent should be guided by ‘equitable considerations.’ For example, a party who is denied direct relief on a claim may nonetheless be found to be a prevailing party if it is clear that the party has otherwise achieved its main litigation objective. [Citations.]” (Hsu v. Abbara (1995) 9 Cal.4th 863, 876-877, original italics.)
The trial court’s determination of the prevailing party for purposes of awarding attorney fees is an exercise of discretion which should not be disturbed on appeal absent a clear showing of abuse of discretion. (Jackson v. Homeowners Assn. (2001) 93 Cal.App.4th 773, quoting Reveles v. Toyota by the Bay (1997) 57 Cal.App.4th 1139,1153, disapproved of on another point in Snukal v. Flightways Manufacturing, Inc. (2000) 23 Cal.4th 754, 775, fn. 6.) The trial court in this case made such a discretionary determination. We only disturb such a determination when there is a clear showing of abuse of discretion. (McLarand, Vasquez&Partners, Inc.v. Downey Savings & Loan Assn. (1991) 231 Cal.App.3d 1450, 1456.)
Appellants contend the trial court abused its discretion finding the Ritters were the prevailing parties below because appellants “prevailed on the issues of greatest importance in the case.” The jury found the failure of the Churchill to fire stop the slab penetrations in the common areas adjacent to the Ritters’ units was a breach of the CC&Rs. The failure to take any [127] remedial action was negligence, a breach of the CC&R’s and a breach of fiduciary duty. Therefore, the Ritters prevailed on their legal causes of action and was awarded monetary damages by the jury. Although the monetary damages were not substantial, the win also avoided the cross-complaint’s $80,000 plus in accumulated fees the Board attempted to assess against the Ritters for failing to correct the slap protrusions in their units.
The Ritters also prevailed on their equitable counts. There was substantial evidence that the slab protrusions constituted a fire hazard and the Ritters were well within their rights to seek injunctive relief to correct the ongoing nature of the Churchill’s violation. The Ritters prevailed on their requested injunctive relief. The Churchill was ordered to bring the issue of the slab penetrations to the attention of the full membership and obtain their vote on the issues of a special assessment to fire stop all slab penetrations. This result accomplished a main litigation objective. Appellants contend that the Ritters did not accomplish their litigation objective because they lost their effort to force the Churchill to fill all the slab penetrations throughout the building. While correction of the entire structure might have been a litigation “dream,” it cannot be considered the main litigation objective. First and foremost, the building codes do not mandate that these defects be remediated immediately. If this was a code requirement, this lawsuit would have never occurred. Absent a code requirement, there is no mechanism to force the modifications to be carried out. The only available remedy was to take this extraordinary maintenance request to the full membership for their consideration. This happened. The fact that the membership did not vote to correct this defect in the building does not mean that the Ritters failed on their main litigation objective.
The Individual Directors
Appellants contend that “the Directors prevailed against the Ritters, period” and it was “error for the trial court to deny them their fees and costs which they duly and timely claimed in appropriate post-trial filings . . . .” We disagree with this contention. The jury found the Churchill liable on the negligence, breach of fiduciary duty and breach of the CC&R’s. The Churchill is an entity which can only act through the efforts of its Directors and agents. As a result of the “business judgment rule” and Corporations Code section 7231, the Directors were shielded from personal liability for the consequences of their decision making; but the Churchill was not. As between the Ritters and the individual Directors, the trial court did not abuse its discretion finding that the Directors were not the prevailing parties. The Ritters prevailed below, the Directors merely avoided liability. [128]
Section 998 — Post Offer Costs.
[14] Under Code of Civil Procedure section 998, a defendant whose pretrial offer is greater than the judgment received by the plaintiff is treated for purposes of post-offer costs as if it were the prevailing party. Appellant contends that the trial court erred in awarding costs to the Ritters in this case because four Code of Civil Procedure section 998 offers were made and the trial court did not analyze or address any of the issues or make any findings as required by section 998. [FN. 17] The Ritters state they submitted a “detailed analyses” to assist the court in assessing the appropriateness of an award of Code of Civil Procedure section 998 costs.
We find no error. “Whether a [Code of Civil Procedure] section 998 offer was reasonable and made in good faith is left to the sound discretion of the trial court.” (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 134.) “In reviewing an award of costs and fees under Code of Civil Procedure section 998, the appellate court will examine the circumstances of the case to determine if the trial court abused its discretion in evaluating the reasonableness of the offer or its refusal.” (Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 152.) “‘The burden is on the party complaining to establish an abuse of discretion, and unless a clear case of abuse is shown and unless there has been a miscarriage of justice a reviewing court will not substitute its opinion and thereby divest the trial court of its discretionary power.” [Citations.]’ [Citation.] ‘”A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown. . . .” [Citations.]’ [Citation.]” (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 136, see also (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.)
Allocation of Fee Award
In appellants’ reply brief, they make the statement that “[i]n view of the actual outcome at trial, the trial court’s fee award cannot be upheld as it failed to include any effort to distinguish the ‘wins’ and ‘losses’ on the Ritters’ various claims and to make a reasoned allocation among them. See also Hilltop [Investment Associates]v. Leon(1994) [129] 28 Cal.App.4th 462, 466 . . . .” The fact that a trial judge deciding attorney fees may appropriately “allocate” or “apportion” fees is well known. The issue of allocation of fees was not raised in appellant’s opening brief. To the extent that this statement is an effort to interject the failure to allocate as an additional reason to object to the award of attorney fees, we decline to reach the point. We do not consider matters raised by appellants for the first time in their reply briefs. Because appellants did not address this factor in their opening brief, they have waived the right to assert this issue on appeal. (Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, fn. 4; Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc.78 Cal.App.4th 847, 894, fn. 10.)(2000)
DISPOSITION
The judgment of the trial court is affirmed.
Flier, J., concurred.
RUBIN, J., Concurring and Dissenting:
I concur in the portions of the majority’s decision affirming both the liability of The Churchill and the order for injunctive relief, but I dissent from those portions of the decision: (1) denying the Churchill directors their reasonable attorney’s fees; and (2) awarding the Ritters virtually the full amount of their requested attorney’s fees.
1. The Directors Were the Prevailing Parties
As the directors of a nonprofit mutual benefit corporation, the five Churchill directors had no liability to the Ritters if they acted in good faith in what they reasonably believed were the best interests of the corporation. (Corp. Code, § 7231, subds. (a)-(c) (section 7231);Finley v. Superior Court(2000) 80 Cal.App.4th 1152, 1157.) The jury in this case apparently made such a finding by exonerating the Churchill directors from liability on each cause of action. The majority believes a fee award was proper against these individuals because The Churchill could act through only its directors, and the directors “merely avoided liability” by virtue of section 7231. Implicit in this is the notion that section 7231 is a mere technicality that allows corporate directors to avoid personal liability for their wrongful acts. I disagree.[FN. 1] [130]
Section 7231 establishes a statutory standard of care for the directors of nonprofit mutual benefit corporations. (See Lamden v. La Jolla Shores Clubdominium Homeowners Assn.(1999) 21 Cal.4th 249, 258;Frances T. v. Village Green Owners Assn.(1986) 42 Cal.3d 490, 506, fn. 13, 513-514.) The standard of care is an essential element of any plaintiff’s cause of action. (Miller v. Los Angeles County Flood Control Dist.(1973) 8 Cal.3d 689, 703; accord Stonegate Homeowners Assn. v. Staben (2006) 144 Cal.App.4th 740, 748-749 [excluding plaintiff’s evidence on standard of care was error because such evidence would have allowed plaintiff to overcome nonsuit motion].) In short, if the directors did not violate the applicable standard of care, they did not commit a wrongful act. Because the Churchill directors were found not liable on every cause of action, they were the prevailing parties. (Hsu v. Abarra (1995) 9 Cal.4th 863, 876-877 [where party obtains a simple, unqualified victory on contract claims, they are prevailing party as matter of law].) A plaintiff who sues individual members of a governing board when its claim is legally against only the board itself should not be rewarded by denying the successful members the attorney’s fees to which they are otherwise entitled.
The only other possible basis for denying the Churchill directors their attorney’s fees is the injunction that ordered them and The Churchill to hold an informational meeting for the homeowners and then have the owners vote whether to have The Churchill pay to repair the slab penetrations in each unit. Although an injunction against the directors might have been proper, because an injunction against a corporation is sufficient by itself to bind the directors (Signal Oil & Gas Co. v. Ashland Oil & Refining Co.(1958) 49 Cal.2d 764, 779-780), it was unnecessary. As the majority itself notes when concluding that injunctive relief was proper despite the jury’s exoneration of the directors, “[t]he fact that the directors were named individually in the judgment on the injunctive relief is not a reflection of their individual liability on the negligence or other counts; rather, it reflects the simple reality that an entity acts through its board and/or agents . . . .” (Maj. opn., ante, at p. 124.) To hold that innocent corporate directors are liable for attorney’s fees (or are to be denied otherwise authorized attorney’s fees) whenever they and their corporate entity are both enjoined to remedy some corporate breach of contract undermines both the spirit and the intent of section 7231. [131]
Therefore, I would reverse the order denying the Churchill directors their attorney’s fees and remand the matter to the trial court with directions to determine the directors’ reasonable attorney’s fees for establishing their section 7231 defense.
2. The Fee Award Against the Churchill Should Be Reversed
The Ritters asked for much at trial, but obtained little. They sued both The Churchill and the directors, alleging damages of $200,000 for the diminished value of their units while seeking an injunction requiring the defendants to spend potentially hundreds of thousands more to repair the slab penetrations in not just their unit but in every condominium in the complex. All they got was their own unit repaired at a cost of a few thousand dollars, a vote of the other unit owners refusing to fund the repairs of the other units, and relief from the fines imposed by the Churchill for failing to make their own repairs. All five directors were exonerated of liability while the Ritters were found to be 25 percent at fault for the events leading to this action. Despite this, the Ritters were found to be the prevailing parties and were awarded virtually all of their requested attorney’s fees, totaling more than $531,000. [FN. 2]
Given these obviously mixed results, I believe the trial court abused its discretion and should have determined there were no prevailing parties on the Ritters’ complaint. (See Deane Gardenhome Assn. v. Denktas (1993) 13 Cal.App.4th 1394, 1398 [determination of no prevailing party typically results when the ostensibly prevailing party receives only part of the relief sought].) Alternatively, I would reverse the fee award because the Ritters’ limited victory made an award of the full [132] amount unreasonably high. (PLCM Group, Inc. v. Drexler(2000) 22 Cal.4th 1084, 1095-1096 [lodestar determination of attorney’s fees may be reduced for several factors, including the success or failure of the prevailing party’s case];In re Gorina (Bankr. C.D.Cal. 2002) 296 B.R. 23, 32-33 [awarding prevailing party full amount unreasonable under California law when losing party defeated six of seven causes of action].) The amount of attorney’s fees spent on this matter was appalling. Awarding the full amount of attorney’s fees rewards the recklessness of the attorneys’ unbridled advocacy. What should have been a manageable dispute to be resolved, perhaps, by a one or two day arbitration without significant discovery turned into a brakeless locomotive that crashed and destroyed most, if not all, the benefits achieved in this unfortunate litigation.
FN 1. The individual directors comprised the Churchill’s entire five-member board of directors throughout all the events in question and through the trial. The several of the directors have since retired and have been replaced on the board.
FN 2. Plaintiffs and respondents will be referred to collectively as “the Ritters.”
FN 3. The Ritters’ investigation of previous board hearing minutes demonstrated numerous incidents where other homeowners complained of odor problems.
FN 4. Ron Mark’ s January 6, 2004 report was discussed extensively at trial and admitted at trial as Exhibit 158.
FN 5. The Board also adopted a new policy that in all subsequent remodels at The Churchill, one of the requirements for approval would be that the owner fills the slab penetrations adjacent to his or her unit. This was based on its advice that current codes require these penetrations to be filled when a remodel is done; so this policy was simply part of The Churchill’s general requirement in the House Rules that all remodels must comply with all applicable Building Codes. The Churchill has since implemented that policy on several occasions without controversy.
FN 6. The Ritters settled their cross-complaint against cross-defendants HarBro, Inc. and L.K. Plumbing & Heating, Inc. at trial and dismissed same with prejudice. The cross-complaining actions against cross-defendant The Churchill Condominium Association became moot based on the jury’s verdict.
FN 7. We reproduce only those portions of the General Verdict reflecting the jurors entries. All italicized information shown above was added to form by the jury.
FN 8. Two of the “yes” votes were from the Ritters.
FN 9. Appellants’ Opening Brief lists the following as their contentions on appeal.
1. The jury’s special findings are inconsistent and irreconcilable with the general verdicts.
2. The jury’s special findings exonerating the individual directors cannot be harmonized with the general verdicts, so the special findings must control and judgment directed for appellants.
3. The trial court failed to give effect to the governance, approval and cost allocation provisions of the Churchill’s CC&R’s or to accord the required deference to the good faith and fully informed decisions of the Churchill’s board.
a) The Churchill CC&R’s and House Rules govern the rights, duties and discretion of the Churchill’s Board, and consign to the Board the decision whether to undertake building improvement projects.
b) The trial court was required to defer to the Board’s good faith decision on a fundamental cost-benefit issue consigned to the CC&R’s to the Board’s discretion.
4. The trial court submitted conflicting legal theories to the jury and failed to properly instruct them on the rights and duties of the Churchill and its directors.
5. The trial court’s injunctive order is manifestly erroneous and unsupported by any findings of wrongdoing.
6. The trial court’s conclusion that the Ritters were the “prevailing parties” entitled to recover their entire $531,150.00 in attorneys’ fees and costs was erroneous and must be revised.
FN 10. There are contentions of error scattered throughout appellant’s briefs. Not all of these contentions are mentioned in appellants’ summary of contentions. (Seeante, fn. 9.) For example, appellants argue that the trial court erred by granting the Ritters’ “Motion for Reconsideration and Revocation of order made July 15, 2005 that Ritters are to Pay for Firestopping on Common Area Adjacent to Units 3H and 3J and/or Request for Court on its Own Motion to Reconsider Same.” The trial court granted the motion and corrected its prior order that the Ritters pay for the firestopping of the slab protrusions adjacent to their units and instead ordered the Churchill to pay this cost. We find no error in the trial court’s order. The order for the Ritters to pay for the repair was itself inconsistent with both the jury verdict and the trial judge’s own rulings.
FN 11. Since 1986, much of the statutory law governing the formation, operation and management of common interest developments has been consolidated and is contained in the Davis-Sterling Common Interest Development Act. (Civ. Code §§1350 et. seq.) All further undesignated statutory references are to the Civil Code.
FN 12. The enforceable provisions of an association’s governing documents are often referred to as “covenants,” “servitudes” or “CC&Rs.”
FN 13. Section 1354 provides: “(a) The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of separate interests in the development. Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both. [¶] (b) A governing document other than the declaration may be enforced by the association against an owner of a separate interest or by an owner of a separate interest against the association. [¶] (c) In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.”
FN 14. (Safety orders and administrative regulations: Wiese v. Rainville173 Cal.App.2d 496, 510; Longway v. McCall (1960) 181 Cal.App.2d 723, 727; Hyde v. Russell & Russell Inc. (1959) 176 Cal.App.2d 578, 583;BiMuro v. Masterson Tru Safe Steel Scaffold Co. (1961) 193 Cal.App.2d 784, 791; city and county building codes: Finnegan v. Royal Realty(1950) 35 Cal.2d 409, 416;Merion v. Schnitzlein (1933) 129 Cal.App. 721, 723; Block v. Snyder(1951) 105 Cal.App.2d 783, 786-789.)(1950)
FN 15. The legislative comments indicate that Corporations Code section 7231, the standard of fiduciary responsibility for nonprofit directors, incorporates the standard of care defined in Corporations Code section 309. (See legis. Committee com., Deering’s Ann. Corp. Code (1994) § 7231, p. 245.) Corporations Code section 309 defines the standard for determining the personal liability of a director for breach of his fiduciary duty to a profit corporation. (Frances T. v. Village Green Owners Assn., supra, 42 Cal.3d at p. 506.)
Corporations Code section sections 7231 and 309 provide, in relevant part: “A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.” (Corp. Code § 7231, subd. (a).) In addition, a director is entitled to rely on information, opinions and reports provided by the persons specified in the statute. (Corp. Code § 7231, subd. (b); § 309, subd. (b).)
FN 16. The Churchill CC&R’s provide:
“XXII ATTORNEY FEES
In the event the Association, the Board or any owner(s) shall bring legal action against any owner to enforce the terms, covenants, conditions and/or restrictions of this Declaration, and they shall be the prevailing party in said lawsuit, the court shall award reasonable attorney’s fees and court costs.”
FN 17. Appellants cite Biren v. Equality Emergency Medical Group, Inc.102 Cal.App.4th 125 and Scott Co. v. Blount, Inc.(1999) 20 Cal.4th 1103, as authority for the proposition that the trial court was required to make certain findings prior to awarding section 998 fees. We are unable to locate in the express language of these cases, or any inferences to be drawn there from, any requirement for a detailed analysis on the record.(2002)
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FN 1. Attorney’s fees have been awarded to parties whose litigation victories were far more “technical” than what transpired here. For example in Elms v. Builders Disbursements, Inc.(1991) 232 Cal.App.3d 671, 673, 675, the trial court dismissed a breach of contract complaint for failure to prosecute but denied the successful defendant its attorney’s fees. The Court of Appeal reversed the attorney’s fees denial, concluding defendant was the prevailing party. (See also M & R Properties v. Thompson(1992) 11 Cal.App.4th 899, 901.)
FN 2. According to the Ritters’ appellate brief, they have agreed not to enforce their fee award against the directors. I find the directors’ liability for contractual attorney’s fees puzzling because, absent allegations that the directors entered a contract with the Ritters on their own behalf or purported to bind themselves personally for breach of the CC&Rs, the directors cannot be held liable for breach of contract. (Frances T. v. Village Green Owners Assn., supra,42 Cal.3d at p. 512, fn. 20.) However, that issue does not appear to have been raised either below or on appeal.