2018 Year-End Review of California Legislation and Appellate Court Decisions

By: Robert D. Hillshafer, Esq.

David A. Loewenthal, Esq.

Barbara A. Higgins, Esq.

 

2018 Year-End Review of California Legislation and Appellate Court Decisions

NEW CASE LAW – 2018

Published Decisions: 

Artus v. Gramercy Towers Condominium Assn., (2018) 19 Cal.App. 5th 923.

SignificancePermanent injunctive relief or declaratory relief (or a request for appointment of a receiver to monitor the HOA’s future conduct) will not be granted when there was no evidence of continuing or intended future violations of the Davis-Stirling Act, nor any provision in the governing documents which violated the Act.  Allegations that the HOA could violate the Act when conducting future elections were considered pure speculation, and insufficient to warrant such relief.

Facts:  After members of an HOA voted by a substantial majority to eliminate the practice of cumulative voting, Plaintiff (who owned three units in the condominium development and had been elected to the Board three times) sued the HOA, claiming that aspects of the election violated the Davis-Stirling Act.  She obtained preliminary injunctive relief on two of her statutory claims, preventing a board election under the new, direct vote rule.  The HOA then held a second election on the issue of cumulative voting, and the outcome of the second election was the same by a substantial margin.  Finding that the second election addressed “whatever valid objections [Plaintiff] may have had to the first”, the Court denied permanent injunctive and declaratory relief.  Plaintiff appealed the judgment against her and also the Court’s denial of her request for statutory attorneys’ fees and costs.

Disposition:  The trial court’s judgment and order denying fees and costs were affirmed.

Key Findings: (1) The only evidence provided by the homeowner to support her claim that a future violation was likely to occur was evidence that the HOA had violated the Act in the past.   The HOA had acted in good faith to comply with the law, and even corrected any deficiencies in the second election.  (2) Nothing in Civil Code Section 5145 demonstrated a legislative intent to depart from well-established principles that fees and costs are ordinarily not granted for interim success, and can only be awarded to the Court-determined prevailing party at the conclusion of the litigation.

Branches Neighborhood Corp. v. CalAtlantic Group, Inc., (2018) 26 Cal.App.5th 743

Significance: Poison Pill” CC&R provisions created by Developers to hinder or even prevent Boards of Directors from pursuing legitimate construction defect claims by requiring a vote of the members may be strictly construed and enforced if not followed to the letter. The Court ignored public policy considerations against allowing the Developer to usurp recognized Board authority to prosecute claims for defects without the vote of a supermajority of members that may be nearly impossible to obtain. The Court defaulted to a public policy favoring the developer protecting its interest rather than consumers, even though the elected Boards and Associations have a legal obligation to repair defective conditions without adequate resources to perform them without the consent of the members.

Facts:  Plaintiff Branches Neighborhood Corporation, (an “HOA”), filed an arbitration claim against the HOA’s developer for construction defects. The arbitrator granted summary judgment in Defendant’s favor, concluding the HOA did not receive the consent of its members to file the claim until after the claim was filed, in violation of its CC&Rs. The trial court subsequently denied the association’s motion to vacate the award, concluding the Court had no power to review the arbitrator’s decision.

Disposition:  The Court of Appeal affirmed the trial court’s judgment not to vacate an arbitration award against the HOA.

Key Findings: In an expansion of self-serving Developer-favoring doctrines requiring arbitrations of construction defect claims pursuant to CCR provisions which were not negotiated by the Association, the Court is ignoring the fact that such provisions take advantage of inherent participation issues in Associations that put the corporation at risk. Finding no such claimed statutory right or public policy in favor of the HOA’s position, the Court of Appeal determined the simple language of the CC&Rs controlled. The Court, apparently not wanting to deal with reality, found that the provision was consistent with the Davis-Stirling Act’s aim to balance association’s need to operate efficiently with the rights of members to be informed beforehand and participate in decision-making as opposed to the Association’s duty to correct defective conditions at the members expense

Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn., (2018) 19 Cal.App.5th 399

SignificanceAn issue of public interest when participating in a government land use entitlement process affecting HOA property is an act in furtherance of the right to free speech, under the anti-SLAPP statute. Association meetings to discuss the development project and a letter contacting the County regarding same were protected speech.

Facts:  Property owners brought action against HOA, asserting numerous statutory and tort theories arising out of dispute over land use approvals for a development project. The trial court granted in part and denied in part the HOA motion to strike under the anti-SLAPP statute prohibiting strategic lawsuits against public participation. Owners appealed and the HOA cross-appealed.

Disposition:  Affirmed in part, reversed in part, and remanded.

Key Findings: (1) The HOA’s activities in writing the letter to the County and in holding meeting(s) to receive views on the project constituted conduct affecting the public interest, and could fall within protection of anti-SLAPP law and were therefore privileged under California law; (2) the developer failed to establish probability of prevailing on its claim for violation of Open Meeting Act, and thus, after showing of protected conduct, its claim was precluded by anti-SLAPP law; and (3) any reliance by developer on representation of association president was not justifiable and thus did not support a fraud claim.

 Greenfield v. Mandalay Shores Community Assn., (2018) 21 Cal.App.5th 896

SignificanceIn beach communities, the City and Coastal Commission regulations govern the allowance of short-term rentals (“STRs”) and take precedence over the CC&Rs.  This ruling fundamentally limits Association’s from protecting its members from the burden of transient rentals unless approved by the Commission or municipalities.  This decision is based on “public access” theories in coastal areas which shouldn’t apply to common interest developments that people bought into with notice of restrictions.

FactsHomeowners, who rented their home in beach community for periods of less than 30 days, filed suit against their HOA for declaratory relief and sought a preliminary injunction to stay enforcement of the HOA’s resolution banning short term rentals, contending that the ban violated Coastal Act because the HOA failed to obtain a coastal development permit before adopting the ban. The Superior Court denied the motion for preliminary injunction, and Homeowners appealed.

Disposition:  Judgment reversed and the Superior Court was ordered to enter a new order granting appellant’s motion for preliminary injunction, staying enforcement until trial.

Key Findings:  Short term rentals were common in Oxnard Shores before the STR ban, and are a matter for the City and Coastal Commission to address. STRs may not be regulated by “private actors” (including an HOA), where it affects the intensity of use or access to single family residences in a coastal zone.

MTC Financial v. Nationstar Mortgage, (2018) 19 Cal.App.5th 811

Significance:  If an HOA is in a junior lienholder position, and forecloses first, the senior lienholder recovers nothing from the sales proceeds or surplus.  However, the senior lien remains in place and the HOA would take subject to the senior lien.

Facts:  Following nonjudicial foreclosure sale of real property on which two deeds of trust were filed for recording simultaneously and indexed sequentially, and when junior lienholder foreclosed its second deed of trust, the Superior Court determined that holder of mortgage was not entitled to surplus funds as senior lienholder. Holder of mortgage appealed.

Disposition: The Court of Appeal affirmed the lower court’s ruling.

Dynamex Operations West, Inc. v. Superior Court, (2018) 4 Cal.5th 903

Significance:  This is a landmark decision by the California Supreme Court impacting businesses across the state because it expands the definition of “employee” and puts the burden on employers to prove that independent contractors are properly classified, overturning nearly three decades of case precedent.  This case underscores that Association’s should refrain from hiring unlicensed individuals such as handymen and instead contract with a licensed business for such maintenance work because the risk of wage and hour claims as well as worker’s compensation claims is too significant. The Court reinterpreted and rejected parts of the pre-existing Borello test for determining whether workers should be classified as either employees or independent contractors for the purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”) in favor of a worker-friendly standard that may upend the existing independent contractor labor market.  Using the newly developed “ABC test”, the Court adopted a standard that presumes that all workers are employees instead of contractors.  Note:  Please consult a Labor/Employment (Wage & Hour) attorney for further analysis of your specific business classifications, as this is a specialized area of law. 

Facts:  Parcel delivery drivers brought a lawsuit against their employer, claiming they were being incorrectly classified as independent contractors rather than employees. The drivers claimed that Dynamex violated provisions of the California Industrial Welfare Commission Wage Order, as well as various sections of the Labor Code.

Disposition: (1) “ABC” test applied to determination of whether drivers were employees or independent contractors under work standard in wage orders;  (2) sufficient commonality of interest existed as to whether drivers’ work was outside company’s usual course of business, as prong of “ABC” test, and thus resolution on a class-wide basis was warranted; and (3) sufficient commonality of interest existed as to whether drivers were engaged in independent business, as prong of “ABC” test, and thus resolution on class-wide basis was warranted. Court of Appeal affirmed.

Key Findings or The “ABC” Test:  Unless the hiring entity establishes (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, (B) that the worker performs work that is outside the usual course of the hiring entity’s business, and (C) that the worker is customarily engaged in an independently established trade, occupation, or business, the worker should be considered an employee and the hiring business an employer under the “suffer or permit to work standard” in wage orders; the hiring entity’s failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an included employee, rather than an excluded independent contractor, for purposes of the wage order. Cal. Code Regs. tit. 8, § 11010 et seq.

2018 FEDERAL CASES OF INTEREST

McNair v. Maxwell & Morgan PC, (9th Cir. 2018) 893 F.3d 680

Significance:  When an attempt to collect HOA fees is made through judicial foreclosure (instead of nonjudicial foreclosure), it is considered a “debt collection” governed by the Fair Debt Collection Practices Act (“FDCPA”).  Any post-judgment attorneys’ fees must first be approved by the court before being sought.

Facts:  Plaintiff alleged that a law firm representing an HOA violated the FDCPA in their efforts to collect unpaid homeowner association assessments, other charges, and attorneys’ fees, that Plaintiff allegedly owed their client.  Defendant law firm filed a Motion for Summary Judgment which was granted by the trial court.

Disposition:  Reversed on appeal and remanded.

Key Findings:  At the point of relevant filing, no court had yet approved the amount of the “accruing” attorneys’ fees claimed by the attorneys for the HOA. Accordingly, Defendants “falsely represented the legal status of this debt” under the FDCPA, by implicitly claiming that the accruing attorneys’ fees had already been approved by a court.

Goudelock v. Sixty-01 Association of Apartment Owners, (9th Cir. 2018) 895 F.3d 633

SignificanceDebtors who successfully complete their Chapter 13 bankruptcy plans, which include the surrender of the condominium unit and earn a discharge are freed permanently from the personal obligation to pay their HOA dues, including post-petition assessments.  If not already foreclosed upon, the HOA still may lien and foreclose on the property for non-payment of postpetition assessments.

Facts:  Goudelock stopped paying condominium assessments in 2009. The HOA initiated foreclosure proceedings in state court. Goudelock moved out of the unit and filed for Chapter 13 relief in March 2011. As part of her Chapter 13 plan, Goudelock surrendered the unit.

Sixty-01 filed a proof of claim for $18,780 in unpaid assessments and asserted that the assessments continued to accrue at a monthly rate of $388. The mortgage lender paid the outstanding assessments. The unit sat unoccupied until Feb. 26, 2015, when the mortgage lender foreclosed on it. (The condominium association had canceled its foreclosure proceeding.)

On July 24, 2015, Goudelock completed her plan obligations and received her discharge.

Meanwhile, in April 2015, the condominium association had commenced an adversary proceeding to determine the dischargeability of Goudelock’s personal obligation to pay the postpetition assessments which accrued between the March 2011 bankruptcy filing and February 2015, when the mortgage lender foreclosed on the unit.

 Disposition:  The Bankruptcy Court granted summary judgment in favor of the HOA, and the District Court affirmed the lower court’s granting of the summary judgment.  Goudelock appealed and the appellate Court reversed on the issue of postpetition condo assessments, against the HOA.

Key Findings: (1) The Court observed that there was no Circuit Court of Appeals decisions that had yet to address the dischargeability of condominium association assessments that became due after the filing of a Chapter 13 petition. But, noted that two courts had addressed the dischargeability of similar postpetition assessments under Chapter 7. (2) The postpetition assessments were not listed in the statutory exceptions allowed to the broad discharge of debts once Goudelock completed her plan obligations. (3) Notions of equity (“free rent”) and fairness cannot override the Code’s express provisions.  It is believed that this decision fundamentally relates to the fact that the Chapter 13 plan involved the owner surrendering the unit to the lender and the lender delaying for several years in foreclosing and acquiring title.  This is another classic example of the Association having to make difficult decisions to expend money to foreclose simply to force a new, paying owner (such as a bank) to step forward and assume responsibility for assessments.   It is altogether likely that the Association could have obtained relief from the automatic stay in bankruptcy early in the proceeding, but waited for the lender to act instead of foreclosing and moving to rent the property pending the senior lender foreclosing. The waiting game can be very expensive.

Geraci v. Union Square, (7th Cir. 2018) 891 F.3d 274

SignificanceNo federal law prevents members of a condominium association from knowing why their association is bearing legal costs and the facts and allegations against it. Sending litigation updates and holding an open forum are reasonable measures to take in order to inform association members of such information. HOA members should also learn from this case that their medical/psychological conditions are subject to investigation in litigation as well as becoming part of the public record.

Facts:  Condominium owner brought action against HOA, alleging its failure to accommodate and retaliation under Fair Housing Act (FHA) for her post traumatic stress disorder (PTSD) by holding an open forum for condominium’s owners to discuss the status of her lawsuit against HOA and by publishing two litigation updates, which caused her embarrassment and emotional distress. Yet, no information revealed at the open forum or in either litigation update went beyond the factual representations made in the public record or lawsuit.  Following a trial, the jury returned a verdict in favor of the HOA. Owner appealed.

Disposition:  Affirmed on appeal.

Key Findings:  Owner’s allegation was insufficient to support her claim for retaliation, and the district court did not abuse its discretion in allowing Association’s expert witness to testify as to owner’s mental impairment. Plaintiff has the burden of proving she is legally handicapped under FHA, and the HOA may present opposing, expert evidence. Owner failed to point to any conduct that a person of normal fortitude would have viewed as coercive, intimidating, threatening, or interfering with the exercise of her protected rights under FHA, and her PTSD became public knowledge when she filed her lawsuit. The Plaintiff in a Fair Housing Act (FHA) action has the burden of proving she is handicapped within the meaning of the statute.  Such cases are typically decided on a case-by-case basis.

 

2018 Unpublished Cases of Interest

The following cases are not binding, legal precedent, but give the reader some idea of how a court might rule under the same or similar circumstances.

Kulick v. Leisure Village, 2018 WL 1918670

Kulick published newsletters under an assumed name and circulated them within the community in violation of the homeowners’ rules prohibiting anonymous publications. The HOA later successfully sued Kulick when he interfered with the insurance coverage for the association and the governing board. Kulick then published another newsletter criticizing the lawsuit and accusing the governing board of malfeasance. When the HOA wrote a response to the newsletter and distributed it to the community, Kulick filed this lawsuit for defamation, among other causes of action.  The HOA then filed an anti-SLAPP motion which was granted. The Court then dismissed the defamation cause of action with prejudice, and awarded attorney fees and costs to the HOA and its attorneys.  This case is another in a growing list of cases in which the Courts are not inclined to allow defamation claims in cases concerning communications in the context of homeowner association issues and business, which is good news for Associations but require Board members to grow thick skins since most of the derogatory comments are against directors.

Kulick appealed and contended that the trial court erred by granting the special motion to strike pursuant to the anti-SLAPP statute, Civil Code Section 425.16.

 

The Court ruled in favor of the HOA for the following reasons:

  • First, expressions of opinion that do not include or imply false factual assertions do not constitute actionable defamation. Thus, the Letter’s characterization of the Newsletter as “reckless,” Kulick’s accusations as “spiteful,” and the Newsletter as an “unwanted intrusion” are expressions of opinion and not actionable defamation.
  • Second, the remaining, challenged statements in the Letter are privileged pursuant to Civil Code section 47. The litigation privilege of Civil Code section 47, subdivision (b), pertains to any communication: 1) made in judicial or quasi-judicial proceedings; 2) by litigants or other participants authorized by law; 3) to achieve the objects of the litigation; and 4) that have some connection or logical relation to the action. (The litigation privilege extends to communications made before, during, or after trial.) The Letter was written and distributed to the HOA’s members during the pendency of the HOA’s previous lawsuit against Kulick. The Letter discussed the lawsuit and invites the HOA’s members to review the courthouse filings

Michaelson v. V.P. Condominium Corporation, 2018 WL 989826

When parking spots are unassigned, those parking areas become part of the general common area with no exclusivity.  A developer, therefore, cannot convey exclusive use rights involving unassigned common areas. The HOA presented evidence that each condominium owner paid one-eleventh of the taxes on the unassigned garage because it is part of the Common Area of the development.  This is consistent with the doctrine that every element in a condominium project is either a separate interest unit owned by a member or common area which is owned by all members in equal undivided shares.  If the condominium plan doesn’t assign a component to a unit, it is therefore considered common area which cannot be assigned except upon the vote of 67% of the membership.

Schwindt v. Omar, 2018 WL 4659630

Homeowner Plaintiff’s next-door neighbors built a room addition that extended into their patio area. The Board had approved the room addition over Plaintiff’s objection. Plaintiff sued the neighbors and claimed that under the CC&Rs, room additions could not be built in patio areas, and that the room addition unreasonably interfered with her view. Following a bench trial, the Court ordered the neighbor- Defendants to demolish their room addition and return their home to its original state. They then appealed, and they argued that the Board’s approval of their addition should have been binding on all the parties, unless the trial court found the Board’s approval to be “clearly arbitrary and capricious”. The appellate court agreed and noted that the lower court’s statement of decision failed to