Source: https://www.davis-stirling.com/Main-Index/Case-Law/Telford-v-Sagewood-HOA
Timestamp: 2017-11-18 02:41:51
Document Index: 415744051

Matched Legal Cases: ['§ 472', '§ 1354', '§ 1354', '§ 1668', '§ 1354', '§ 1363', '§ 1363', '§ 7110', '§ 1034', '§ 472']

Browsing History Main IndexCase LawTelford v. Sagewood HOA
In reviewing a judgment following an order sustaining a demurrer without leave to amend, we treat the demurrer as admitting all material facts properly pleaded. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) Consequently, the following facts, unless otherwise noted, are drawn from the third amended complaint and are treated as true.
In May 2007, plaintiffs sued Lass and the HOA for damages they allegedly incurred as a result of what was then an ongoing construction project which, they alleged, had caused them the loss of quiet enjoyment of their property and physical and emotional harm. They sued Lass on theories of public and private nuisance, intentional and negligent infliction of emotional distress, and negligence in the manner in which he conducted the construction project.1 They sued the HOA for negligence, contending that it failed to adequately evaluate the proposed project for compliance with the HOA's governing documents, including provisions prohibiting any actions within the community which unreasonably interfered with any resident's right to quiet enjoyment or which may endanger the health of another resident or which may unreasonably annoy or disturb other residents or amount to a nuisance. They alleged that the approval of the project was "not only negligent, but was unreasonable, arbitrary, and in bad faith" and that it resulted from the "close personal relationship" between Lass and one or more board members. They also sued the HOA for breach of its governing documents and breach of fiduciary duty, based on the same facts alleged under the negligence cause of action.
The HOA's demurrers to the original complaint and to the first and second amended complaints were sustained with leave to amend in some respects and without leave in others.2
In an appeal from a judgment based on an order sustaining a demurrer for failure to state a cause of action, the reviewing court treats the demurrer as admitting all material facts properly pleaded and independently determines whether the complaint states a cause of action under any legal theory. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Quelimane Co. v. Stewart Title Guaranty Co., supra, 19 Cal.4th at p. 38.) If the complaint does not adequately state a cause of action, the reviewing court may grant leave to amend if there is a reasonable probability that the complaint can be amended to state a cause of action, even if the plaintiff has not sought leave to amend. (City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 746; Code Civ. Proc., § 472c, subd. (a).)
Defendants contend, among other things, that the HOA had sole discretion to determine whether to approve Lass's construction project, that it had no duty to monitor the project once it was approved, and that it has sole discretion to determine how or whether to enforce the provisions of its governing documents. Although defendants are correct that discretionary decisions of the board of directors of a homeowners' association with respect to maintenance of the property and its other functions are granted deference under a version of the "business judgment rule," deference is accorded only if the association has acted "upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members." (Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249, 265 (Lamden).) Here, the gravamen of plaintiffs' causes of action is that the HOA did not act reasonably or in good faith. Accordingly, we examine the sufficiency of the TAC from that perspective.
Plaintiffs have alleged that the HOA failed to enforce various provisions of its governing documents. Civil Code section 1354 provides that the covenants and restrictions in the declaration of CC&R's of a common interest development are enforceable as equitable servitudes, and that they "inure to the benefit of and bind" all owners of separate interests in the development. (Civ. Code, § 1354, subd. (a).) "Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both." (Ibid.) Consequently, when an association fails or refuses to enforce its CC&R's, "a homeowner can sue the association for damages and an injunction to compel the association to enforce the provisions of the declaration." (Lamden, supra, 21 Cal.4th at p. 268.) An owner also has the right to compel the association to enforce its other governing documents: "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."3 (Civ. Code, § 1354, subd. (b).) Here, neither the declaration of CC&R's nor the architectural guidelines states that it may be enforced only by the HOA. Accordingly, plaintiffs, as owners, have a right to compel the HOA to enforce their provisions or to seek damages for the HOA's failure to do so. (Lamden, at p. 268.)
As plaintiffs have alleged, the architectural guidelines do require the HOA to ascertain that a project complies with the plans as approved.4 The guidelines also limit construction to the hours of 8:00 a.m. to 5:00 p.m. Monday through Saturday, excluding holidays. And, they provide that all owners "have a right and responsibility" to call all violations of the CC&R's and architectural guidelines to the attention of the HOA, via its management company, and provide for remedies for violations. Consequently, failure to monitor a project for compliance with the plans and/or with the guidelines or to investigate complaints that the project is not in compliance, as plaintiffs alleged, is a breach of the HOA's duty pursuant to the guidelines. Further, the CC&R's prohibit activities which interfere with the right of owners to the quiet enjoyment of their properties and provide for remedies for the breach of the CC&R's, the bylaws and the "Rules and Regulations of the Association." Accordingly, the TAC states causes of action for negligence and failure to enforce the governing documents with respect to the HOA's failure to take action to require Lass to comply with the architectural guidelines and to refrain from actions which amounted to a nuisance. And, because a homeowners' association stands in a fiduciary relationship with the member homeowners (Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d 642, 651 [Fourth Dist., Div. Two] (Kite Hill)), the TAC states a cause of action for breach of fiduciary duty by the HOA based on these allegations as well.
Homeowners' associations are generally afforded broad discretion to determine the best means to exercise their obligations under the governing documents, such as to perform maintenance and repair (Lamden, supra, 21 Cal.4th at p. 265) or to enforce provisions of their governing documents (Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863, 875). That discretion is limited by the requirement that the association must act within the scope of its authority under the governing documents and "upon reasonable investigation, in good faith and with regard to the best interests of the community association and its members." (Lamden, at p. 265.) Here, the architectural guidelines clearly provide that the determination as to which of several enumerated remedies to pursue is within the HOA's discretion, and the CC&R's imply as much. Consequently, the HOA's failure to take legal action to enjoin Lass's project does not constitute a breach of duty under the guidelines or the CC&R's. It is clear, however, that the HOA had a duty to undertake a reasonable investigation into plaintiffs' complaints that Lass was violating the guidelines or the CC&R's and to determine, in good faith, whether a remedy was called for and if so, which remedy to apply. On remand, plaintiffs may amend their complaint accordingly.
Defendants are correct that a homeowners' association has broad discretion to grant or withhold consent to an owner's proposed construction or improvement project if the CC&R's grant such discretion. (Dolan-King v. Rancho Santa Fe Assn. (2000) 81 Cal.App.4th 965, 977.) However, "It is a settled rule of law that homeowners' associations must exercise their authority to approve or disapprove an individual homeowner's construction or improvement plans in conformity with the declaration of covenants and restrictions" and that they must do so in good faith, consistent with their fiduciary obligations to the homeowners. (Kite Hill, supra, 142 Cal.App.3d at pp. 650, 651; see also Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 383.) Here, the CC&R's and the architectural guidelines require the HOA to exercise discretion in deciding whether to approve any project and in deciding what, if any, conditions to impose upon the project. Plaintiffs' allegation that the HOA did not act in good faith in approving Lass's project and/or in failing to require Lass to comply with conditions it imposed on the project because of his special relationship with Dietrich is sufficient to allege a cause of action for breach of the governing documents and breach of fiduciary duty.5 (See Kite Hill, at p. 652.)
Defendants also contend that the CC&R's expressly exempt the HOA and the directors from liability for any damage resulting from the approval of any construction plans or the performance of any work whether or not pursuant to approved plans.6 This exculpatory clause cannot be reconciled with the HOA's fiduciary duty to the property owners.
As this court observed in Kite Hill, "The law has traditionally viewed with disfavor attempts to secure insulation from one's own negligence or wilful misconduct[.]" (Kite Hill, supra, 142 Cal.App.3d at p. 654.) "Furthermore, it is the express statutory policy of this state that `[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from the responsibility for his own fraud or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.' (Civ. Code, § 1668.)" (Kite Hill, at p. 654.) "This public policy applies with added force when the exculpatory provision purports to immunize persons charged with a fiduciary duty from the consequences of betraying their trusts." (Ibid.) Moreover, "the California Supreme Court has evinced a clear policy of enforcing only those exculpatory provisions which do not affect `the public interest.'" (Kite Hill, at pp. 654-655, citing Tunkl v. Regents of the University of California (1963) 60 Cal.2d 92, 96.) Applying the Supreme Court's criteria for determining whether a business or transaction affects a public interest, we concluded that the exculpatory clause did not relieve the homeowners' association from liability for breach of its fiduciary duties because it occupied "a particularly elevated position of trust" due to its quasi-governmental status and "the many interests it monitors and services it performs." (Kite Hill, at pp. 651, 655; accord, Neubauer v. Goldfarb (2003) 108 Cal.App.4th 47, 56 [for purpose of determining effectiveness of exculpatory clause, breach of fiduciary duty constitutes willful injury to the property of another within the meaning of Civil Code section 1668].) For these reasons, the exculpatory clause in the CC&R's cannot insulate defendants from liability if, as plaintiffs have alleged, the HOA approved Lass's plans in bad faith, based on Lass's relationship with Dietrich, or if it failed in its fiduciary duty to protect plaintiffs from the effects of Lass's construction.
At oral argument, the HOA contended that we should apply Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th 361, rather than Kite Hill to determine the effectiveness of the exculpatory clause. We disagree. In Nahrstedt, the court held that covenants in common interest development CC&R's which restrict an owner's use of his or her property are "`enforceable . . . unless unreasonable.'" (Nahrstedt, at p. 380 [italics omitted], quoting Civ. Code, § 1354, subd. (a).) The exculpatory clause is not a restrictive covenant affecting an owner's use of his or her property. Rather, it affects the association's fiduciary relationship with the owners. Accordingly, Kite Hill is the relevant authority.
A substantial factor in causing harm is "a factor that a reasonable person would consider to have contributed to the harm. It must be more than a remote or trivial factor[, but it] does not have to be the only cause of the harm. [¶] Conduct is not a substantial factor in causing harm if the same harm would have occurred without that conduct." (CACI No. 430; see Rutherford v. Owens-Illinois, Inc. (1997) 16 Cal.4th 953, 969.) A homeowners' association's breach of its fiduciary duty to enforce its governing documents may indeed be a substantial factor in causing damages alleged to have resulted from a neighboring owner's construction project. (Kite Hill, supra, 142 Cal.App.3d at p. 653.) Here, if the HOA had not approved Lass's project or if it had taken action to limit the impact of Lass's project, plaintiffs would not have suffered the harm they alleged. Consequently, even though it was the project itself which caused plaintiffs' injuries, we cannot say as a matter of law that the HOA's conduct, as alleged, was not a substantial factor.7
Defendants also contend that damages for emotional distress are not available for breach of contract. However, breach of fiduciary duty is a tort. (Enea v. Superior Court (2005) 132 Cal.App.4th 1559, 1566-1567, and cases cited therein.) Damages for emotional distress are available for such a claim. (Jahn v. Brickey (1985) 168 Cal.App.3d 399, 406.)
Plaintiffs allege that the HOA breached its duties to the homeowners when it permitted Lass to convert a common area to his own use without obtaining the approval of 67 percent of the owners. They allege that the HOA conditioned approval of the grant of the common area to Lass on the approval of 67 percent of membership "in conformity with the Davis-Stirling Act"8 and then acted contrary to that condition. Defendants pointed out in their demurrer that Civil Code section 1363.07, which generally requires approval of at least 67 percent of the membership in order for the directors of a common interest development to grant exclusive use of a common area to any member did not become effective until July 1, 2006, after the date the HOA approved the project. (Civ. Code, § 1363.07, subd. (a); see Historical and Statutory Notes, 8 West's Ann. Civ. Code (2007 ed.) foll. § 1363.07, p. 248.) Plaintiffs acknowledge as much, but assert in their opening brief that the board was aware that Civil Code section 1363.07 had been enacted and chose to apply its provisions to Lass, even though the statute was not yet in effect.
The HOA was organized pursuant to the California Nonprofit Mutual Benefit Corporation Law (Corp. Code, § 7110 et seq.), and its officers and directors serve without compensation. Consequently, if Code of Civil Procedure section 425.15 applies, plaintiffs were required to obtain the court's permission before filing the complaint as to Dietrich. Code of Civil Procedure section 425.15 does not apply, however, because the TAC does not allege that Dietrich acted negligently in carrying out his duties as a director or officer of the HOA; rather, it alleges that he breached his fiduciary duty of good faith and fair dealing by placing his financial and personal interests above the interests of the HOA and of the homeowners and that he did so "in willful, malicious, oppressive, conscious, and reckless disregard for his fiduciary duties owned [sic] to Plaintiffs and other homeowners." Consequently, the demurrer was improperly sustained on the basis of Code of Civil Procedure section 425.15.
Nevertheless, the demurrer was properly sustained because, although the complaint alleges in passing that Dietrich had a duty to act in the best interest of the HOA, the gravamen of the complaint is that Dietrich breached his "fiduciary duty of good faith and fair dealing" by placing his interest in his friendship and financial relationship with Lass ahead of his duty to ensure that the homeowners were not subjected to a project which unreasonably interfered with their right to quiet enjoyment. A director of a homeowners' association owes a duty of due care and undivided loyalty to the association, not to the individual homeowners. (Frances T. v. Village Green Owners Assn., supra, 42 Cal.3d at p. 513.) Accordingly, no cause of action lies against a director for damages suffered by an individual homeowner on a theory of breach of fiduciary duty.
At oral argument, the HOA contended that an award of costs on appeal is inappropriate because this is an interim appeal and it cannot yet be determined which party will prevail in the litigation. The HOA is partially correct: Plaintiffs are entitled to their costs on appeal, but the cost award may not include an award of attorney fees.9 In Presley of Southern California v. Whelan (1983) 146 Cal.App.3d 959, on which the HOA relies, the court held that a plaintiff which prevails in an interim appeal following entry of a summary judgment is entitled to costs on appeal, but that the cost award excludes contractual attorney fees which might otherwise be awarded to the plaintiff as the prevailing party. A plaintiff's entitlement to attorney fees must, instead, be determined after trial. (Id. at pp. 960-963; accord, Wood v. Santa Monica Escrow Co. (2009) 176 Cal.App.4th 802, 805-808.) The same rule applies here. With respect to the HOA, plaintiffs are entitled to their costs on appeal, but they may not recover attorney fees as costs at this juncture, pending determination of which party ultimately prevails in the litigation. (See Code Civ. Proc., § 1034; Cal. Rules of Court, rule 8.278(a)(1), (a)(2), (d).)
2. On September 15, 2008, the trial court sustained the demurrer to the seventh cause of action, for breach of fiduciary duty on the part of the HOA, in plaintiffs' second amended complaint, without leave to amend. Plaintiffs realleged the seventh cause of action in the third amended complaint. Although defendants do not make an issue of it, they state in the "procedural background" section of their brief that the previous order precluded plaintiffs from realleging breach of fiduciary duty by the HOA in the third amended complaint. However, it is proper, although unnecessary, to reallege a "dead" cause of action—i.e., one as to which a demurrer was sustained without leave to amend—in a future amended complaint, in order to preserve the right of review concerning the validity of the cause of action. (National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 44-45.) The ruling sustaining the demurrer as to that cause of action without leave to amend is reviewable in this appeal. (Code Civ. Proc., § 472c, subds. (b), (c).)