Tag: California

Understanding deference to HOA boards and overturning bad precedents

A recent California case, Affan v. Portofino Cove HOA, highlights several important aspects of legal precedent and the judicial deference doctrine that all advocates must understand. First, in California, as applied to maintenance decisions only, the court in Lamden v. La Jolla made a reasonable clarification of the business judgment rule and established the “judicial deference” doctrine.

This court ruled:

It is important to note the narrow scope of the Lamden rule. It is a rule of deference to the reasoned decisionmaking of homeowners association boards concerning ordinary maintenance. It does not create a blanket immunity for all the decisions and actions of a homeowners association. The Supreme Court’s precise articulation of the rule makes clear that the rule of deference applies only when a homeowner sues an association over a maintenance decision that meets the enumerated criteria.

The Lamden opinion made clear, however, that the rule applies only in limited circumstances. The court described those specific circumstances as follows: “Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.”

You must understand the ruling, the courts reasoning, and the criteria that make for a valid defense by the HOA, such as, “duly constituted board”, “reasonable investigation”, “in good faith and in the best interests of the community”, “exercises its discretion . . . within . . . its authority”. And the Court added, “The judicial deference doctrine does not shield an association from liability for ignoring problems; instead, it protects the Association’s good faith decisions to maintain and repair common areas.” (emphasis added).

The court in Affan also removed the managers from protection under this defense since they are not an HOA.

Second, the Affan court clearly found fault with the trial court’s conclusion made without substantial evidence, like a dicta (opinions by authority without any foundation being supplied, as found in too many decisions favoring HOAs). “The trial court never decided, based on the evidence . . . . Instead, the court simply concluded as a matter of law, ‘based upon Lamden,’ that defendants were not liable for negligence . . . “ The court overruled the trial court and required a decision based on evidence.

Third, the Affan court illustrates out how the Lamden court overruled the business judgment rule and established the ‘judicial deference” rule, rejecting precedent in the name of justice and fairness. Unjust and unfair precedents favoring the HOA can be and must be overturned!

court examines consent and surrender of rights in HOA CC&Rs

 This HOA arbitration clause case discusses those important legal issues ignored by  state legislatures and the courts over the years —  those pertaining to the homeowner’s consent to agree, his surrender of his rights by the  mere acceptance of a deed, and raises the question of misrepresentation by the participants in the Unspoken Alliance.  The Court in Pinnacle[1] reiterated that consent may occur by implication, but does not concern itself with the “full knowledge” and misrepresentation of that implied consent.  While the Court dealt with the matter before it, the arbitration clause, the application of its reasoning can be extended to the broader issues of a valid contract under its application of contract law requirements.

 For example, one aspect is the holding that the buyer has agreed to the CC&Rs if he has opportunity to examine the CC&Rs, at or shortly after closing and accepting the deed, but declines to do so.   This legal doctrine presumes that “all things being equal”, but they are not with regard to misrepresentation by the developer and the real estate agent, and the silence on the part of the consumer protection agencies.  These agencies have failed to put forth warnings to buyer to the effect:  There are surprises and covenants that you may feel are oppressive, which may affect your rights, freedoms, privileges and immunities to which you are entitled under state laws and the Constitution.

 The Court stated the facts of the Pinnacle CC&Rs .

 “In selling the condominiums Pinnacle used a standard purchase and sale agreement that recited on the first page that the buyer agrees to comply with the CC&R’s by accepting a grant deed to the condominium. . . . any dispute in any manner other than as provided in [the CC&R’s]. Buyer and Seller acknowledge that by agreeing to resolve all disputes as provided in [the CC&R’s], they are giving up their respective rights to have such disputes tried before a jury. WE HAVE READ AND UNDERSTOOD THE FOREGOING AND AGREE TO COMPLY . . . “

 In spite of the above, the Court found the clause unconscionable.  Borrowing from Villa Milano[2], the court quoted (emphasis added), “A developer should not be permitted to accomplish through the CC&R’s what it could not accomplish through a purchase contract.”   (Please note that in a broader sense I have argued that HOAs by virtue of a written covenants running with the land — CC&Rs — cannot be allowed to circumvent the US Constitution.)  The court held,

 “We examine this question under general contract formation principles. . . .Essential components of a contract include parties capable of contracting and the consent of the parties to the contract. . . . Although the arbitration provision states that by accepting a deed for any portion of the association property, the Association agreed to give up its right to a jury trial and have any construction dispute decided by arbitration, the Association had no choice but to accept the property that Pinnacle deeded to it.

 “We agree with Villa Milano insofar as it holds that CC&R’s can reasonably be ‘construed as a contract’ and provide a means for analyzing a controversy arising under the CC&R’s when the issue involved is the operation or governance of the association or the relationships between owners and between owners and the association. . . .”

Please read the following very carefully.  “Does not comport” should be read as:  insufficient to pass judicial review for the surrender of such an important Constitutional right.

 “Treating CC&R’s as a contract such that they are sufficient to waive the right to trial by jury does not comport with the importance of the right waived. CC&R’s are notoriously lengthy, are adhesive in nature, are written by developers perhaps years before many owners buy, and often, as here with regard to the waiver of trial by jury, cannot be modified by the association. Further, the document is not signed by the parties. . . . The general principles discussed in Treo[3] regarding the need for free and voluntary consent before a party can be deprived of its constitutional right to a jury trial are equally applicable to arbitration.”

 The Court then addressed the issue of unconscionable adhesion contracts. 

 “Procedural unconscionability focuses on oppression or surprise.  “Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice,” while “surprise involves the extent to which the supposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them. . . . In assessing substantive unconscionability, the paramount consideration is mutuality.

 “The provision in the purchase and sale agreements did not mention arbitration, nor did it explain to purchasers the type of disputes for which they have agreed to waive their constitutional right to a jury. To discover this information, purchasers needed to read the CC&R’s. . . . However, for the terms of another document to be incorporated by reference into a contract, the reference must be clear and specific, and the terms of the incorporated document must be known or easily available to the contracting parties.”  [The CC&Rs are incorporated by the statement that the deed is subject to CC&Rs, but most do not contain the explicit legal  statement, “and are incorporated herein”].

And specifically in regard to binding homeowners by means of constructive notice,

 “Assuming the CC&R’s had been recorded before the sale of the first condominium, we cannot conclude that recording a document qualifies as making the document readily or easily obtainable. It is unreasonable to assume that buyers eager to complete their purchase of a condominium will stop the process and travel to the county recorder’s office to locate a copy of the CC&R’s. Thus, there is a high degree of surprise because purchasers have no means of ascertaining . . . . Oppression also exists because the jury waiver provision in the purchase and sale agreements and the arbitration provision in the CC&R’s were part of preprinted materials presented on a take-it-or-leave-it basis to purchasers without any negotiation. . . . Accordingly, the existence of surprise and oppression reveals a high degree of procedural unconscionability.”

One would think that all those CAI lawyer-members of its College of Community Association Lawyer, and all those legal-academic aristocrats who write journals, attend seminars and conferences, and offer their person opinions in the Restatement Third, Property: Servitudes on what the law is would know better.  The Restatement was supposed to summarize the general holdings of the courts, and not the opinions of the legal-academic aristocrats, as to the common law of servitudes (covenants running with the land). 

 For example, § 3.1, comment h, states: “in the event of a conflict between servitudes law and the law applicable to the association form, servitudes law should control”;  and § 6.13, comment a, states: “The question whether a servitude unreasonably burdens a fundamental constitutional right is determined as a matter of property law, and not constitutional law”. These statements reflect an excess of zeal and an abuse of the duties as editors/contributors to the Restatement.  It is not to difficult to conclude that this Restatement serves to advance the interests of the legal-academic aristocrats.

These efforts have permitted HOAs to become institutionalized over the years, which translates into an acceptance without question of the rights and powers of the HOA.  The principles applied in this case on arbitration clauses must be extended to the very nature and legal foundation of the HOA scheme.

 

Notes

 1. Pinnacle Museum Tower HOA v. Pinnacle Market Dev., D055422, Cal. App. Dist. 4 (July 30, 2010).

 2. Villa Milano Homeowners Assn. v. Il Davorge, 84 Cal.App.4th (2000).

 3. Treo @ Kettner Homeowners Ass’n v. Superior Court, 166 Cal.App.4th 1055 (2008).

CAI Calif. fears threat of artifical lawns to conserve water

In its June 8, 2010 email, CAI-CLAC (California legislative action committee), cries in desperation to stop government intrusion on the right, as they see it, for the HOA to restrict artificial lawns.  A mass rally is called for to stop this serious legal affront to HOA dominance of its members.

State Legislation Removes HOA Authority and Discretion

 Urgent request for “GRASS ROOTS” letters by this Friday

 Assembly Bill 1793 would prohibit associations from restricting or banning the installation of artificial lawns.  . . . The bill totally removes an association’s right to maintain a natural grass streetscape in order to preserve the ambiance and property value.  It will create friction in the association and opens the door to lawsuits.

 Among the reasons for CAI’s opposition to the bill, provided predominantly before its list of “other reasons” is,

 We need to stop the rush to judgment by some legislators who think they are simply saving water by voting for this bill, when in fact the bill creates serious problems and will cause unintended negative consequences. 

 (Please note CAI’s SOP (standard operating procedure) to resort to scare tactics, “the sky will fall”, some dreadful, unsubstantiated consequence will befall the HOA.)

 It’s a water conservation issue to promote the general welfare, including for the benefit of HOA owners who, don’t forget, are still part of the general community.  But, CAI doesn’t see it that way.  CAI does not see HOAs as part of the general community, and therefore, sees no obligations to the to the town, the city or the state to be a good corporate citizen.  The sentiment of the CAI cry in this email is nothing more than:  How dare the Calif. Legislature tell HOAs what to do without our approval?   

 In this email, while CAI proclaims to fight for the noble cause of local, direct democracy,  “the voice of the people”, CAI has actively promoted and encouraged state legislatures to adopt some version of a top-down, parallel set of laws just for private, de facto HOA governments, such as Davis-Stirling, or UCIOA.  The April 2006 media release by CAI HQ said,

 It is the policy of CAI to recommend that when state governments amend their basic community association development laws they consider the need for updated and comprehensive legislation to regulate the development of community association housing consistent with the above goals. Moreover, in undertaking such review, state governments are urged to consider and give favorable treatment to one or more of the Uniform Community Association Acts.

 Furthermore, in this email, CAI advertises, “Serving 3,000,000 California Households in Condominiums and Homeowner Associations.”  This is outrageous and misleading statement! It may serve them as vendors, but not as representatives of these households before public entities.   Even the HOA board of directors does not represent the owners before public entities.  The California Legislature represents all the people of California, including those living in HOAs.  CAI cannot say that it represents HOAs/condos per se, either, since it is not permitted to have these categories as members. 

 The CAI dogmatic ideology is that HOAs are sacrosanct and untouchable, unless approved by CAI, as documented by the  positions taken by CAI lobbyists before numerous state legislatures over the years.   CAI seeks power over HOAs! 

 The California legislators should bear in mind that these canned letters will be coming from the CAI stalwarts and HOA true believers, which will not be a valid representation of the people in HOAs.

  

A digression — checking what the numbers mean

Now, pay attention carefully.  Using this figure of 3,000,000 households (units in Census terms), and CAI and Census data of 2.6 persons per household, gives rise to a calculated  7.8 million people in HOAs/condos.  Also, corroborating, my research[i] on the national ration of HOA population to total US population of 19.6% , yields about 7.2 million people in HOAs — close enough for our investigation.  Consequently, based on the 3 million household figure,  CAI is claiming that it serves almost all of the HOAs/condos in California. 

 Continuing, taking my research figure of the average number of residents in an HOA, nationally, of 211, then there should be 36,997 HOAs/condos (low end).  Cross checking, using the research average of 82 units per HOA, there would be some 36,600 HOAs in California — not bad results.

 Yet, nationally, CAI with its 30,000 proclaimed members, and assuming that each member lives in a separate HOA/condo, would have a membership that contains, at most, about 10% of their stated 305,000 HOAs/condos in this country.   Applying the 10%  membership ratio, then CAI has a member, at most, in some 3,650  HOAs.  (Applying the 211 figure to 3,800 HOAs yields about 770,150 people in HOAs that have a CAI member).

 Notes

[i] cf. Have HOAs hit a growth plateau?, May 22, 2010.

Calif. finds HOA suit against opposition signs to be SLAPP

Some sense is finally being displayed by Cal. courts in support of the Constitution against the second local,  de facto  governments — HOAs.   Homeowners require protection to speak out, since HOA issues can be public issues.  Many states have an anti-SLAPP statutes.  

A SLAPP suit (strategic lawsuit against public participation) is a lawsuit brought primarily to chill a party’s constitutional right of petition or free speech. The anti-SLAPP statute was enacted to prevent and deter lawsuits that chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances and provides “an efficient procedural mechanism to obtain an early and inexpensive dismissal of nonmeritorious claims” arising from the exercise of those constitutional rights. (Martinez v. Metabolife Intern., Inc. (2003) 113 Cal.App.4th 181, 186.)

Section 425.16, subdivision (b)(1), states: “A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.”

The Signs Are Speech Protected by the First Amendment

The Signs Are Not Defamatory

The Signs are in a Public Forum and Concern a Matter of Public Interest

No Probability of Success on the Merits Nuisance

Slander of Title.  The Beach Club asserts that it has stated a cause of action for slander of title because the signs disparage and impair the marketability of its property.

 
HOLDING:  Beach Club action was SLAPP.

SANTA BARBARA BEACH CLUB, LLC, v. FREEMAN, No. B212972 (Cal. App. 2 Div. May 3, 2010).  

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