Epsten, APC

In October 2007, Majestic Asset Management LLC purchased the Cal Oaks Golf Course from prior owners. Majestic is owned by a husband and wife, Hai and Jen Huang, who own a related company Wintech Development, Inc.

The Cal Oaks Golf Course is located within The Colony at California Oaks Homeowners Association. The 2007 purchase agreement included Majestic assuming the obligations of the prior owners to use the property only as a golf course, to maintain it in at least as good condition as that of other similar golf courses in the area, and to maintain and water the fingers in a manner acceptable to the association. These obligations also exist in the grant deed and in a separate performance deed of trust (PDOT). After Majestic’s acquisition of the golf course, grass and trees died, a lake dried up, and the landscaping deteriorated. Majestic began using the site to host events, despite the association’s disapproval, and Majestic stopped paying a portion of the maintenance costs shared with the association.

In 2012, the Majestic sued the association and the prior owner of the golf course to get out from the obligations of operating and maintain the golf course. They challenged the validity and enforceability of the PDOT. The association countersued against Majestic, Wintech and the Huangs. That lawsuit was tried in 2015, and judgment was entered against Majestic, Wintech and the Huangs. The court also found that the PDOT was valid and enforceable, including the foreclosure provision. Majestic and the Huangs appealed the 2016 judgment, which was affirmed in 2018. The appellate court found that the PDOT and all its obligations remained effect as long as Majestic owns the golf course.

In June 2019, the association moved for a foreclosure order based on Majestic’s ongoing failures to satisfy the obligations under the PDOT. The court initially decided to appoint a receiver instead. More than 2 years later the association again moved for foreclosure pursuant to the PDOT. In September 2022, the court found judicial foreclosure was appropriate. And in March 2023, evidentiary hearings were held regarding the value of the default of the PDOT and whether Majestic had a right of redemption. Based on evidence of the cost to rehabilitate the golf course, the court determined that the value of the PDOT was $2.7 million. In August 2023, the court entered ordered foreclosure of the PDOT and included clarifying language that if Majestic did redeem the golf course, all the terms of the PDOT would remain in effect for as long as Majestic were to own the property.

Majestic appealed both the foreclosure order – as to the impact of redemption on the obligations of the PDOT – and the PDOT valuation. Majestic argued two points on appeal: first, if it redeemed the golf course, the PDOT obligations would be extinguished by the redemption, and second, the PDOT was essentially worthless – not $2.7 million. The appellate court slightly modified the value of the PDOT to $2.5 million, eliminating one category of expenses related to restoring the golf course. As to the foreclosure, the court rejected all of Majestic’s contentions holding that foreclosure was proper and that redemption would not extinguish the obligations under the PDOT.

TAKEAWAY:  Deeds of trust do not have to be tied to money to be valid and enforceable.

The Koll Center Newport is a master-planned, mixed-use development area approximately 117 acres in size adjacent to John Wayne Airport in Newport Beach. The Koll Center is subject to CC&Rs that were drafted in 1972 by the original declarant, Koll Center Newport, L.P., and recorded in 1973 over the vacant land which later became the Koll Center. Over decades, the Koll Center was developed and the CC&Rs were amended several times. Plaintiff Olen Properties Corporation became the owner of a four-story office building at the Koll Center.  Defendant, KCN A MANAGEMENT, LLC (“KCN”) became the successor declarant under the CC&Rs.

In July 2022, KCN approved the proposal of TPG Acquisition, LLC (“TPG”) for the construction of a five-story, 312-unit apartment complex with 273 basement parking spaces beneath the apartment building, a one-acre public park, and a four-level free standing parking structure (“TPG Project”) adjacent to the building owned by Olen. The proposed development site included 6.216 acres of common parking area used by Olen and other owners. 

Olen filed a lawsuit alleging the TPG Project and KCN’s approval of it violated several provisions of the CC&Rs. The trial court agreed and granted an injunction requiring TPG and KCN to follow the CC&Rs’ approval process, including but not limited to, providing complete working drawings and to require that the 452 parking spaces lost to Olen by the proposed development not be reduced below limits required in the CC&Rs.

The court of appeal upheld the trial court’s injunction in certain ways and ordered that the trial court fix the injunction to be consistent with the CC&Rs and its opinion.  Notably, the court held that KCN as successor declarant owed fiduciary duties to the owners of real property like Olen at the Koll Center.  Further, even if acting in good faith, the court determined that KCN cannot make decisions that violate the CC&Rs.  The CC&Rs did not permit the TPG Project to go forward, as designed, because the 273 subterranean parking spots beneath the project did not replace the common parking areas that would be lost to Olen by the proposed development, among other reasons.

TAKEAWAY: A successor declarant who exercises control over the approval process for improvements in a master-planned community owes fiduciary duties under the CC&Rs to property owners in the community. 

The Schneiders and Karla Lane own adjoining properties positioned along Trinity River in Alpine County. Karla Lane’s lot is land-locked to the west of the Schneiders’ property, meaning Lane can only access the county road on the east of the Schneider’s property by a road along the riverbank, River Road. The written easement, recorded on title to both properties, provides ingress and egress between Lane’s property and the county road. The easement while express, did not provide a metes and bounds legal description and merely referenced the “existing road and driveway.” In 2002, a flood washed away part of the River Road.

Lane filed a quiet title and declaratory action in 2003 against the Schneiders, which lasted eight (8) years. In 2011, the trial court held the easement burdened the entirety of the Schneiders’ lot (not just the “existing road and driveway”) and designated a new easement route which was referred to as the 2011 route.

In 2018, another flood eroded the 2011 route, and so a new permissive route was needed. In 2019, the Schneiders filed a quiet title and declaratory action, alleging Lane failed to maintain the 2011 route and protect it from erosion, and disputing Lane’s right to relocate the easement. Lane filed a cross-complaint for declaratory relief, seeking cooperation from the Schneiders to designate an alternate easement route.  Trial was held on Lane’s cross-complaint to determine the easement’s location and maintenance responsibilities. The trial court determined the location of the new easement and held that Lane was responsible for maintaining the easement, which included stabilizing the riverbank in an area separate from the easement. All parties appealed.

The appellate court disagreed that Lane was responsible to stabilize the riverbank. The court analyzed Civil Code section 845 and the obligation of an easement owner to “maintain it in repair.” The court found the ordinary meaning of “repair” is to keep up and preserve an easement in good condition, and not to create new structures or make major capital improvement, particularly when the proposed riverbank improvements were 30 to 50 feet away from the easement route.

TAKEAWAY: The owner of the dominant tenement of an easement is responsible for the costs of maintaining and repairing the easement, but not for major improvements or taking separate protective measures that go beyond general upkeep.

Ohio House, LLC operated a sober living facility for men recovering from addiction in Costa Mesa, California in a multi-family residential zone. Ohio House began offering these services and housing to men in 2012. The City of Costa Mesa (“City”) enacted zoning ordinances in 2015 regulating group homes and sober living homes, including separation requirements between facilities. In 2016, City denied Ohio House’s application for a conditional use permit because the facility did not meet the separation requirement; it was not 650 feet apart from other sober living homes. Among other considerations, City noted in its denial that not requiring Ohio House to comply with the separation requirement would fundamentally alter City’s zoning program. City ordered Ohio House to cease operations and imposed numerous fines.

Ohio House sued City for unlawful discrimination against its residents in violation of the Fair Housing Act (“FHA”), the Fair Employment and Housing Act (“FEHA”) and other claims. 

The appellate court affirmed the lower court’s ruling that Ohio House’s intentional discrimination claim failed because the differential treatment imposed under City’s group-living regulations facially benefitted the protected class. City’s zoning code benefitted the disabled over non-disabled because it allowed group homes and sober-living homes with six or fewer residents to operate in residential zones, whereas boarding houses of any size (without supportive services for the disabled) were categorically barred from operating in residential districts. Therefore, there was no intentional discrimination.

Moreover, the court held that Ohio House failed to establish that City’s zoning code disparately impacted the disabled because Ohio House could not prove that the protected class – disabled individuals – suffered an adverse and disproportionate impact, rather the operators of group homes did. Additionally, the court found no evidence of discriminatory preferences disfavoring the disabled or interference with Ohio House’s operations by City because City did not have a discriminatory intent in passing its zoning ordinance. The Court found sufficient evidence that City made changes to its zoning to prevent an overconcentration of group living arrangements that produce deleterious effects to the residential character of communities. 

TAKEAWAY:  Community associations may not prohibit residential care facilities or sober- living homes that service six or fewer persons pursuant to California Health and Safety Code. This case had no impact on that body of law. However, this decision may result in more cities having confidence to adopt rules that prohibit group living arrangements, while allowing disability-related housing like group homes and sober-living homes to operate, subject to restrictions. 

Plaintiff Jeffrey Nabatmama is a tenant within the Shenandoah Villas Homeowners Association. The association imposed over $106,000 in fines against plaintiff for alleged violations of its CC&Rs. Defendant Ross Morgan & Co., Inc. is the association’s community management company, who attempted to collect the fines from plaintiff. Plaintiff filed a complaint against the defendant under the Fair Debt Collection Practices Act (FDCPA). Particularly, plaintiff alleged defendant violated 15 U.S.C.S. §§ 1692a-1692o in its collection attempts.

Defendant filed a motion to dismiss. In ruling on the motion, the trial court appreciated the distinction between regular assessments and fines and held that only the former is considered “debt” under the FDCPA. The court further held that fines do not arise from a consensual transaction, which is required for an obligation to be considered “debt” under the FDCPA; because the fines are penalties imposed for violations of association rules and not from the initial property purchase or agreement to pay regular assessments.

The court held that since fines do not constitute “debt” under the FDCPA, the plaintiff’s claims failed as a matter of law. Thus, the court granted defendant’s motion to dismiss plaintiff’s complaint, with prejudice, because the court found that any amendment to the complaint would be futile.

TAKEAWAY: Regular assessments arise under a consensual transaction tied to a purchase of property while fines are penalties for rule violations. For this reason, community association assessments are considered debts and subject to the FDCPA, but fines are not.

An owner had defaulted on the association’s assessments, so the trustee and agent for the association recorded a notice of delinquent assessment, a notice of default and election, and a notice of trustee’s sale. The unpaid association assessments and estimated sale costs totaled $37,763.21.

Bird Rock Home Mortgage, LLC submitted the highest bid at the trustee’s sale and tendered $60,000 to the association. However, the check was not deposited, and no deed was ever issued to Bird Rock. Rather, the bidding was kept open for an additional 45 days under Civil Code section 2924m. During this extended bidding period, Breaking Ground, LP submitted the highest bid at $203,000. The association issued a trustee’s deed upon sale to Breaking Ground, and returned Bird Rock’s $60,000 check, which Bird Rock refused to accept. 

In an effort to set aside the sale to Breaking Ground, Bird Rock filed a quiet title and declaratory relief against Breaking Ground, alleging Section 2924m did not apply to the lien for unpaid assessments. The trial court held Section 2924m applied to the trustee’s sale to enforce the assessment lien. The trial court further held a lien for unpaid assessments, authorized by its governing documents, qualifies as a “mortgage” for purposes of the nonjudicial foreclosures, thus validating the extended bidding period and the sale and deed delivery to Breaking Ground.

Bird Rock appealed. Upon review, the appellate court affirmed the trial court’s judgment, holding Section 2924m applies to such sales when the property contains one to four residential units, and the sale is conducted under a power of sale contained in a mortgage. The appellate court further held there is no conflict between Section 2924(m) and the Davis-Stirling Common Interest Development Act regarding nonjudicial foreclosures; both can operate together. The judgment in favor of Breaking Ground was affirmed, and respondents were awarded costs on appeal.

TAKEAWAY: This case confirms that the extended bidding period under Civil Code section 2924m applies not only to mortgage/trust deed foreclosures but also to community association assessment lien sales.

11640 Woodbridge Condominium Homeowners’ Association was in the middle of a re-roofing project when two rainstorms resulted in water intrusion in all the condominium units in the building. The association had an “all-risks” insurance policy with Farmers that covered all property damage, unless specifically excluded under the policy. The association tendered the claims twice: immediately following the first rainstorm and then two weeks later immediately after the second rainstorm. Farmers retained Pete Fowler Construction Services to inspect the roof. Fowler determined that the tarps on the roof were too small and that the roofer had violated industry standards by removing 80% of the roof at once instead of working in small sections. Based in part on Fowler’s report, Farmers denied the claim based on the water damage exclusion and the faulty workmanship exclusion.

Because the cost of remediation and repair of the water damage was estimated at more than $3.5 million, the association sued Farmers for breach of contract and for bad faith. The association also sued the roofing company. Farmers filed a summary judgment motion on the bad faith claim and on the request for punitive damages based upon the language of the policy and the fact that the water intrusion occurred not due to damage to the roof, but rather because the roof had been intentionally removed and was being repaired (water damage exclusion). Farmers also based its summary judgment motion on the fact that the roofer had intentionally removed 80% of the roof at once, which allegedly was outside the industry standard (faulty workmanship exclusion). The trial court granted the motion in favor of Farmers and against the association.

Previously, there was only one “all-risk” insurance case that had been decided in California arising out of damage during roof repairs (Diep v. California Fair Plan Assn.). In the Diep case, the insurance company prevailed on summary judgment. The appellate court not only looked at the prior California case, but also looked to other states’ decisions on all-risk insurance coverage. Ultimately, the appellate court decided to follow the cases from New York, New Jersey and Oregon.

As to the water damage exclusion the court held that there was always a roof on the building because “roof” was not a defined term in the policy and only certain layers of roofing material had been removed when the damage occurred; so the rain damage was covered. As to the faulty workmanship exclusion, the court found the term to be ambiguous because it could refer to faulty or negligent work and/or a faulty or negligent process. Accordingly, the court found that coverage was not unambiguously excluded and that there were triable issues of material fact. Because the court found that there was a reasonable interpretation of the policy language under which the association had coverage, the appellate court reversed the summary judgment rulings on both the bad faith claim and on the request for punitive damages. The association was awarded its costs on appeal. As of the print date of this document, the California Supreme Court has granted review of this case and briefing is pending, so this decision is not yet final.

TAKEAWAY:  Always tender early – you never know when there might be coverage.

Jason Goldwater and Raphael Mena were neighbors, but they probably were not friends. In fact, they had a history of altercations. One day when Goldwater’s dog wandered onto Mena’s patio, Mena attacked the dog. Goldwater came over, and he and Mena got into a fight. The police were called. Mena and Goldwater had nearly opposite descriptions of what had happened. The police arrested Goldwater at the scene. Two days later, Goldwater filed a petition for a civil harassment restraining order against Mena. Mena also filed a petition for a restraining order against Goldwater. Because the two petitions were related, the Superior Court set both restraining order requests on the same day before the same judge.

At the hearing, Mena and Goldwater maintained their differing versions of the facts, with each accusing the other of being the instigator and aggressor. Mena’s petition was heard first, and it was granted. When Goldwater’s petition came on for hearing before the court, it was denied because Mena’s had already been granted, and as a result, the two men had to stay away from each other.

Goldwater appealed the court’s decision. The appellate court reviewed the situation and found that for purposes of civil harassment restraining order applications, Goldwater had met his burden of proof and that a restraining order should be issued against Mena. The initial denial of Goldwater’s application for a temporary restraining order (TRO) was improper, according to the court, because the court’s standard for the initial TRO is simply whether the elements of a restraining order have been shown based on clear and convincing evidence. Denying a TRO application is a finding by the court that the application did not meet the burden of proof. The court found the lack of practicality in the court issuing dueling TROs is an improper reason for denying a TRO application that satisfies the burden of proof.

To obtain a TRO as part of a civil harassment restraining order petition, the appellate court found that Goldwater had made a showing by clear and convincing evidence of the necessary elements to receive at TRO: specifically, Goldwater had shown that Mena had harassed or stalked Goldwater, or that Mena committed acts of violence against Goldwater, or that Mena had threatened Goldwater with violence. Under California Code of Civil Procedure section 527.6, subdivision (b), Goldwater also showed that Mena’s conduct or course of conduct was such as would cause a reasonable person to suffer substantial emotional distress and must actually cause substantial emotional distress to the victim, Goldwater.

Ultimately, based upon Goldwater’s TRO application, the appellate court ordered that the second TRO should also be issued in favor of Goldwater so that the Superior Court could conduct the hearings on the permanent restraining orders on the same day.

TAKEAWAY:  If a petitioner makes the required showing, the petitioner is entitled to a TRO regardless of the impracticalities.