Fowler v. Golden Pacific Bancorp

Summary by Pejman D. Kharrazian, Esq.:

Fowler, a corporate director (not of a common interest development), petitioned the court to compel an inspection of corporate books and records pursuant to the Corporations Code. The corporation opposed the petition arguing that because the director was involved in ongoing litigation with the corporation, the court should curtail the director’s inspection rights because the director could use the information obtained during inspection against the corporation in the ongoing litigation. The trial court granted the director’s petition and the corporation appealed.
The court of appeal, in upholding the trial court’s ruling, found that the mere possibility that information could be used adversely against the corporation is not by itself sufficient to defeat a director’s inspection rights. Rather, any exception to the general rule favoring access to corporate records by directors must only be limited to extreme cases, e.g., where enforcing an absolute right of inspection would produce an absurd result, such as when the evidence establishes the director’s clear intent to use the information to breach fiduciary duties or otherwise commit a tort against the corporation

TAKEAWAY: Consult with legal counsel before restricting a director’s access to corporate records. California has a strong public policy favoring a broad right of access to corporate records to assist directors in performing their duties in an intelligent and fully informed manner. The statutory scheme gives every director the right to inspect and copy all books, records and documents, but there are several California cases (see e.g., Chantiles v. Lake Forest II Master Homeowners Assn.; Tritek Telecom, Inc. v. Superior Court; and Havlicek v. Coast-to-Coast Analytical Services, Inc.) that limit that right in certain specific limited circumstances. Because the denial of access to corporate records may operate to deny a director the ability meaningfully to participate in corporate governance, any exception to the policy of “absolute” access must be construed narrowly.

***End Summary***

80 Cal.App.5th 205 (2022)

No. C092179.

Court of Appeals of California, Third District.

 

June 23, 2022.
APPEAL from a judgment of the Superior Court of Sacramento County, Super. Ct. No. 34-2019-80003150-CU-WM-GDS, James P. Arguelles, Judge. Reversed with directions.

Law Office of Stephanie J. Finelli and Stephanie J. Finelli for Defendant and Appellant.

Tisdale & Nicholson and Michael D. Stein for Plaintiff and Respondent.

 

OPINION

 

KRAUSE, J.—

This is an action to compel an inspection of books and records pursuant to Corporations Code section 1600 et seq.[1] Plaintiff Rick Fowler (Fowler) sought a writ of mandate against defendant Golden Pacific Bancorp, Inc. (Bancorp), to enforce his statutory rights as a director and majority shareholder to inspect corporate books and records. Bancorp opposed the petition, arguing that the trial court should curtail Fowler’s inspection rights because he is involved in ongoing litigation with Bancorp and could use the information to undermine Bancorp’s position in the lawsuit. Unpersuaded that Bancorp met the heavy burden necessary to curtail Fowler’s inspection rights, the trial court granted Fowler’s writ petition.

Bancorp appealed, contending that the trial court erred by (1) allowing Fowler to submit additional evidence on reply without permitting Bancorp an adequate opportunity to respond; and (2) granting the writ petition and permitting Fowler to have unfettered access to Bancorp’s corporate books and records.

After we issued an oral argument waiver notice, Bancorp moved to dismiss the appeal as moot. Bancorp asserted that due to the recent acquisition of 211*211 Bancorp by Social Finance, Inc., Fowler is no longer a Bancorp board member, and therefore it is impossible for this court to grant effective relief. Fowler requested oral argument. We deferred ruling on the motion until after oral argument.

We shall conclude that the primary issue raised in this appeal is moot because Fowler is no longer a member of Bancorp’s board of directors and therefore has no director’s inspection rights. Nevertheless, we exercise our discretion to reach the merits because it presents an issue of substantial and continuing public interest: whether a director’s “absolute” right of inspection under section 1602 may be curtailed because the director and corporation are involved in litigation and there is a possibility the documents could be used to harm the corporation.

We shall conclude the mere possibility that information could be used adversely to the corporation is not by itself sufficient to defeat a director’s inspection rights. Rather, any exception to the general rule favoring unfettered access must be limited to extreme cases, where enforcing an “absolute” right of inspection would produce an absurd result, such as when the evidence establishes the director’s clear intent to use the information to breach fiduciary duties or otherwise commit a tort against the corporation.

We decline to reach the other question referenced in the parties’ briefs concerning Fowler’s inspection rights as a shareholder, because that issue was not resolved by the trial court and the record is insufficiently developed for us to determine whether it is moot. Thus, we shall remand this matter for the trial court to consider whether that issue is moot and, if not, to resolve any remaining disputes in the first instance.

 

FACTUAL AND PROCEDURAL BACKGROUND

 

Bancorp was a bank holding company conducting business through its wholly owned subsidiary, Golden Pacific Bank, N.A. Fowler was a member of Bancorp’s board of directors and its largest individual shareholder, holding over 19 percent of the outstanding stock. Fowler also is the chief operating officer of a law firm, Kronick, Moskovitz, Tiedemann & Girard (KMTG).

In July 2018, Bancorp filed a lawsuit in the Sacramento County Superior Court (Golden Pacific Bancorp, Inc. v. Kronick, Moskovich, Tiedemann & Girard (Super. Ct. Sacramento County, No. 34-2018-00236905)) against KMTG, an individual attorney at KMTG, and Fowler (the malpractice lawsuit). The lawsuit arose out of KMTG’s representation of Bancorp in prior litigation against a company called BillFloat, Inc. (the BillFloat litigation). Bancorp’s amended complaint alleges claims against KMTG and its attorney 212*212 for breach of contract, breach of professional duties, professional negligence, and breach of fiduciary duties in connection with the prosecution and eventual settlement of the BillFloat litigation. Among other things, the complaint alleges that KMTG and the attorney overbilled for services, negligently failed to evaluate and prepare the case for trial, and caused Bancorp to accept a grossly inadequate settlement amount.

The complaint also alleges claims against Fowler for negligence, breach of fiduciary duty, concealment, and fraud based on his actions as a Bancorp director. Specifically, it asserts that Fowler breached his fiduciary duties by persuading Bancorp to hire KMTG for the BillFloat litigation despite knowing that KMTG was not competent to handle the litigation. It further alleges that Fowler used his position as director to persuade Bancorp to settle the BillFloat litigation for a grossly inadequate amount because Fowler knew KMTG had failed to conduct sufficient discovery and investigation to prepare the case for trial.

In September 2018, two months after Bancorp filed the malpractice lawsuit, Fowler delivered to Bancorp a written demand to inspect and copy the following books and records pursuant to section 1600 et seq.:

1. A list of the names, addresses, e-mail addresses, and holdings of all Bancorp shareholders;

2. A breakdown of the expense and income balance sheet items labeled “Other” for Bancorp and its wholly owned subsidiary bank;

3. A breakdown of where on the 2017 and 2018 consolidated financial statements the BillFloat settlement payment was booked, and where KMTG’s legal fees for 2016, 2017, and 2018 were booked;

4. Any change in control/severance/golden parachute agreements for Bancorp-affiliated parties;

5. Any resolutions approving change in control agreements or an increase in director fees and/or bonuses for 2016, 2017, and 2018;

6. Any documents evidencing payment of the personal legal fees of Bancorp president and chief executive officer, Virginia Varela, in 2016, 2017, and 2018;

7. The loan file pertaining to the Axis Energy SBA loan; and

8. The bank’s accounting books and records, and meeting minutes for its board and committees from September 2017 through the date of the request.

213*213 Fowler asserted that, as a director, he had an “absolute right” to inspect the records under section 1602. Bancorp, however, refused to permit inspection, citing conflicts of interest and concerns that Fowler was seeking the records for an improper purpose, namely, to undermine Bancorp’s position in the malpractice lawsuit.

Fowler did not immediately seek a peremptory writ to enforce his statutory inspection right. Instead, in November 2018, Fowler served Bancorp with a request for production of documents in the malpractice lawsuit seeking records substantially similar to those sought in his inspection demand letter.

When Bancorp refused to produce the requested documents, Fowler filed a motion to compel. In support of his motion, Fowler argued that the requested documents were relevant to Bancorp’s claims and his defenses in the malpractice lawsuit. Bancorp opposed the motion, asserting, inter alia, that most of the records Fowler requested were irrelevant to the lawsuit and would only be of interest in his capacity as a “disgruntled shareholder/director.” The court agreed with Bancorp. It denied the motion to compel, concluding that the document requests were overbroad, invaded third party privacy rights, and sought information that was not relevant.

Shortly thereafter, Fowler filed this action for a peremptory writ of mandate to enforce his statutory right to inspect Bancorp’s books and records. His amended petition alleges that he has an “absolute right” as a director and shareholder to inspect and copy the records pursuant to sections 1600 and 1602. In a supporting declaration, Fowler stated that he requested the inspection to protect his interests as Bancorp’s single largest shareholder and to fulfill his fiduciary duty as a director to stay informed about Bancorp’s financial condition and operations.

Bancorp opposed the writ petition, asserting that inspection should be denied because Fowler is not a disinterested director and his only motive in requesting the records is to “dismantle and undermine” Bancorp’s lawsuit against him and the law firm for which he works. Bancorp characterized the petition as an attempted “end-run” around the adverse discovery ruling in the malpractice lawsuit.

To support its claim that Fowler was requesting the documents for an improper purpose, Bancorp submitted a declaration from Bancorp board member David Roche.[2] Roche declared, inter alia, that (1) Fowler is a party to ongoing litigation with Bancorp in which it is alleged Fowler breached his 214*214 fiduciary duties; (2) Fowler repeatedly stated his desire to have the litigation dismissed; (3) Bancorp’s board believes that allowing Fowler to inspect and copy the requested records would “severely undermine” its position in the litigation; (4) Fowler previously sought to compel discovery of the same records in the lawsuit, but his request was denied; (5) it was only after the adverse discovery ruling that Fowler filed the writ petition; and (6) Fowler never previously made a demand to inspect Bancorp’s corporate records.

In reply, Fowler filed a supplemental declaration responding to the factual assertions made in Bancorp’s opposition papers. Fowler declared, “Contrary to [Bancorp’s] supposition about my purpose in filing the Petition, I want to inspect the subject corporate records, especially the financial statements and working papers for these records, among other things, to learn how certain expenses and income items were calculated and what certain large numbers consist of, as well as how the compensation for [Bancorp’s] Chief Executive Officer and its directors is being determined and the basis for and calculations of certain stock transactions with [Bancorp’s] preferred shareholder.”

In his supplemental declaration, Fowler also addressed why he never previously invoked his statutory right to inspect Bancorp’s corporate records. He explained that before July 2017, he regularly received reports, had frequent exchanges with the chief executive officer and committee chairs, and had unrestricted access to most corporate documents through an online platform. It was only when Bancorp “cut off” his ability to contact employees and access corporate records online that it became necessary for him to invoke his statutory inspection rights.

The writ petition was heard on March 6, 2019. On the morning of the hearing, Bancorp filed a declaration of Virginia Varela, Bancorp’s president and chief executive officer, which sought to refute various statements in Fowler’s supplemental declaration, including his assertions that (1) he previously had online access to the records discussed in his September 2018 demand; and (2) he was wrongfully denied access to the basic financial information necessary for him to carry out his duties as a board member. The court agreed to consider the Varela declaration to the extent it responded to the factual assertions in Fowler’s supplemental declaration, but refused to consider any new grounds for denying inspection.

After a hearing, the trial court granted the writ petition. In its ruling, the court agreed with Bancorp that Fowler’s statutory inspection rights are not “absolute.” However, the court ruled that a director’s inspection rights can be curtailed only in “`extreme circumstances'” in which the corporation establishes by a preponderance of the evidence the director’s intent to commit an 215*215 irremediable tort against the corporation. The court ruled that, notwithstanding the inherent conflict raised by the malpractice lawsuit, “[t]he preponderance of the evidence in this action does not establish Fowler’s intent to commit a tort against [Bancorp], much less one that is irremediable in damages.” The court thus enforced Fowler’s right to inspect the corporate books and records under section 1602.

Judgment was entered on March 17, 2020. Bancorp filed a timely notice of appeal.

While the appeal was pending, Bancorp was acquired by Social Finance, Inc. (SoFi), by and through a merger with Gemini Merger Sub, Inc. (Gemini), a temporary subsidiary of SoFi formed solely for that purpose. Pursuant to the terms of the agreement, Gemini was merged into Bancorp, with Bancorp as the surviving corporation. Further, under the agreement, the directors of Gemini became the directors of the surviving corporation. SoFi completed the acquisition of Bancorp on or about February 2, 2022.

 

DISCUSSION

 

 

I

 

 

Mootness

 

As a threshold issue, we consider whether the appeal is moot due to SoFi’s acquisition of Bancorp.

An appeal becomes moot when the occurrence of an event makes it impossible for the appellate court to grant any effective relief. (Newsom v. Superior Court (2021) 63 Cal.App.5th 1099, 1109 [278 Cal.Rptr.3d 397].) “`[A]n action which originally was based upon a justiciable controversy cannot be maintained on appeal if the questions raised therein have become moot by subsequent acts or events.'” (Id. at p. 1110.)

Bancorp argues that this appeal is moot and must be dismissed because, as a result of the acquisition, Fowler is no longer a shareholder or member of Bancorp’s board of directors, and therefore no longer has standing to assert any inspection rights.

Fowler opposes Bancorp’s motion to dismiss. He argues the case is not moot for several reasons, including that he filed a “dissenter’s right” lawsuit challenging SoFi’s acquisition of Bancorp and seeking a determination of the fair market value of his shares. Further, even if the case has been rendered 216*216 technically moot, Fowler argues the appeal still should be decided because it concerns an issue of public importance that is likely to recur.

We agree with Bancorp that the issue of Fowler’s inspection rights as a director is now moot. It is well established that a director’s right to inspect corporate books and records ends upon his or her removal from office. (Chantiles v. Lake Forrest II Master Homeowners Assn. (1995) 37 Cal.App.4th 914, 920 [45 Cal.Rptr.2d 1] (Chantiles).) A former director has no right to an ongoing and enforceable right to inspect corporate records. (Wolf v. CDS Devco (2010) 185 Cal.App.4th 903, 919 [110 Cal.Rptr.3d 850] (Wolf).) Here, it is undisputed that, as a result of SoFi’s acquisition, Fowler is no longer a Bancorp director. Thus, Fowler can no longer assert rights as a director to inspect Bancorp’s books and records, rendering the issue moot. (Chantiles, supra, at p. 920; Wolf, supra, at p. 919.)

Nevertheless, we may exercise our discretion to retain and decide an issue which is technically moot where the issue is of substantial and continuing public interest. (Chantiles, supra, 37 Cal.App.4th at p. 921; accord, La Jolla Cove Motel & Hotel Apartments, Inc. v. Superior Court (2004) 121 Cal.App.4th 773, 781-782 [17 Cal.Rptr.3d 467].) We do so here. The scope of a director’s inspection rights is one of public importance which we should decide, even if it is technically moot.

We reach a different conclusion, however, regarding Fowler’s claim to shareholder inspection rights under section 1600, subdivision (a). This issue was not resolved by the trial court and the additional facts before us are inadequate for us to determine whether subsequent events have rendered the issue moot. Accordingly, we shall remand this matter for the trial court to consider whether subsequent events have rendered this issue moot and, if not, to resolve any remaining disputes in the first instance.

 

II

 

 

Bancorp’s Request for Additional Briefing

 

Turning to the merits, we first address Bancorp’s argument that the trial court erred by allowing Fowler to provide additional evidence in his reply papers while denying Bancorp a fair opportunity to respond.

As described above, in reply to Bancorp’s opposition, Fowler submitted a supplemental declaration giving his reasons for demanding an inspection and explaining why he had not made similar demands in the past. Bancorp objected to the additional evidence and, in the alternative, requested additional time to file a sur-reply brief addressing Fowler’s new evidence. The court overruled Bancorp’s objections and denied its request to file a sur-reply brief.

217*217 We review the trial court’s ruling for an abuse of discretion (Alliant Ins. Services, Inc. v. Gaddy (2008) 159 Cal.App.4th 1292, 1299 [72 Cal.Rptr.3d 259]), and find no abuse here. As the trial court held, “Although Fowler is the petitioner in this proceeding, it was not his initial burden to provide reasons for the inspection.” Unlike director inspection rights in other states, “[t]he California statutory scheme does not impose a `proper purpose’ requirement….” (Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39 Cal.App.4th 1844, 1851 [46 Cal.Rptr.2d 696] (Havlicek); cf. Del. Code Ann., tit. 8, § 220.) Thus, Fowler was not required in his moving papers to articulate a proper purpose for the inspection reasonably related to his interests as a director. He merely needed to show that he was a director and that he made a demand for inspection, which was refused. (§§ 1602, 1603.)

When Fowler made that showing, the burden shifted to Bancorp to show why the inspection should be curtailed by “just and proper conditions.” (§ 1603; Havlicek, supra, 39 Cal.App.4th at p. 1856; see Saline v. Superior Court (2002) 100 Cal.App.4th 909, 915 [122 Cal.Rptr.2d 813] (Saline).) In attempting to meet that burden, Bancorp presented evidence to show that Fowler was seeking the documents for an improper purpose. The trial court correctly ruled that Fowler was entitled to respond with countervailing evidence in his reply.

Bancorp argues that because the court allowed Fowler to refute the evidence presented in the opposition, the court was obliged to give Bancorp the same opportunity. But Bancorp was given an opportunity to refute the additional evidence presented in the reply. On the morning of the hearing, Bancorp filed the Varela declaration to “refute many of the misstatements and omissions” in Fowler’s supplemental declaration. The court considered that declaration to the extent it responded to the factual assertions in the supplemental declaration. The record shows that Bancorp had a fair opportunity to respond. Bancorp has failed to demonstrate that the trial court abused its discretion in refusing to allow it additional time to file a sur-reply, much less that it was prejudiced by the refusal.

 

III

 

 

Fowler’s Right To Inspect Corporate Records

 

Bancorp next argues that the trial court erred in granting the petition to enforce Fowler’s right to inspect corporate books and records under section 1602. We disagree.

 

218*218 A. The scope of a director’s inspection rights

 

In reviewing the trial court’s judgment granting a petition for writ of mandate, we apply the substantial evidence test to the trial court’s factual findings. (Vasquez v. Happy Valley Union School Dist. (2008) 159 Cal.App.4th 969, 980 [72 Cal.Rptr.3d 15].) Legal issues, such as statutory interpretation, are reviewed de novo. (Ibid.) The scope of a director’s right to inspect corporate documents is a question of law subject to de novo review. (Saline, supra, 100 Cal.App.4th at p. 913.)

In construing section 1602, as with any statute, our task is to ascertain the intent of the lawmakers so as to effectuate the purpose of the law. (Sierra Club v. Superior Court (2013) 57 Cal.4th 157, 165 [158 Cal.Rptr.3d 639, 302 P.3d 1026].) We begin “with the words of the statute, because they generally provide the most reliable indicator of legislative intent.” (Hsu v. Abbara (1995) 9 Cal.4th 863, 871 [39 Cal.Rptr.2d 824, 891 P.2d 804].) If the language contains no ambiguity, we generally presume the Legislature meant what it said, and the plain meaning controls. (Garcetti v. Superior Court (2000) 85 Cal.App.4th 1113, 1119 [102 Cal.Rptr.2d 703].)

Section 1602, which governs the right of inspection, provides in relevant part: “Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign.” (§ 1602.) By its plain terms, section 1602 establishes a broad right of inspection. (Havlicek, supra, 39 Cal.App.4th at p. 1852.) The Legislature’s choice of the word “absolute” suggests a right “having no restriction, exception, or qualification.” (Merriam-Webster Unabridged Dict. Online (2022) [as of June 23, 2022], archived at .) This “absolute” right reflects a legislative judgment that directors are better able to discharge their fiduciary duties to the corporation and its shareholders “if they have free access to information concerning the corporation.” (Havlicek, at p. 1852; see Hartman v. Hollingsworth (1967) 255 Cal.App.2d 579, 581-582 [63 Cal.Rptr. 563].)

Nevertheless, decisional authority establishes that a director’s right to inspect documents is subject to exceptions. (Havlicek, supra, 39 Cal.App.4th at p. 1855.) While the “absolute right” to inspect documents is the general rule in California, courts have held that the literal meaning of the words of the statute may be disregarded where necessary to avoid absurd results. (Havlicek, at p. 1856; see also Anderson Union High School Dist. v. Shasta Secondary Home School (2016) 4 Cal.App.5th 262, 279 [208 Cal.Rptr.3d 564] 219*219 [the language of a statute should not be given a literal meaning if doing so would result in absurd consequences].) Thus, a trial court may impose “just and proper conditions” upon a director’s inspection rights in appropriate cases. (§ 1603, subd. (a);[3] Havlicek, at p. 1856; see Saline, supra, 100 Cal.App.4th at p. 914.)

The full scope of exceptions to a director’s “absolute” inspection rights remains unsettled. But our colleagues in other appellate districts have identified certain circumstances in which inspection rights may be curtailed.

In Chantiles, supra, 37 Cal.App.4th 914, the Fourth Appellate District, Division Three, held that the “absolute” right of a homeowners association director to access records may be limited to preserve the constitutional rights of members to keep their voting decisions private. (Id. at pp. 918, 926.) In Chantiles, a director who believed that he had been shortchanged in the tabulation of proxy votes, filed a petition to inspect and copy all the ballots cast in the association’s annual election. (Id. at p. 919.) But the trial court refused to permit the director unfettered access to the ballots. Instead, the court established a procedure whereby the director’s attorney could inspect the ballots while preserving the secrecy of how each individual member voted. (Id. at pp. 920, 926.) The appellate court affirmed. It held that the trial court had properly balanced the competing interests and determined that the director’s statutory right to an unqualified inspection must yield to the members’ constitutional right of privacy. (Id. at pp. 925-926; but see conc. opn. of Crosby, J., at pp. 927-929 [concluding damages, rather than a rejection of inspection rights, is the appropriate remedy for misapplication of corporate records].)

In Havlicek, the Second Appellate District, Division Six, considered whether the trial court properly denied inspection of corporate books and records by two dissident directors who were opposed to a corporation’s pending merger. (Havlicek, supra, 39 Cal.App.4th at pp. 1848-1850.) The directors asserted an absolute right to inspect the records, but the corporation refused to permit access because it suspected the directors might use the documents to establish a competing business. (Id. at pp. 1849-1850.) The directors filed a lawsuit to enforce their inspection rights, which the trial court denied. (Id. at p. 1850.) The appellate court reversed and remanded. (Id. at 220*220 pp. 1856-1857.) It concluded that the trial court erred in refusing to grant the directors, “at the very least, an `inspection with just and proper conditions.'” (Id. at p. 1848.)

For guidance on remand, the court explained that because the right of inspection arises out of a director’s fiduciary duty—a duty to act with honesty, loyalty, and good faith in the best interests of the corporation (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1037 [100 Cal.Rptr.3d 875])—courts may limit inspection rights when a director intends to misuse those rights to harm the corporation. (Havlicek, supra, at pp. 1852, 1855-1856.) The court offered the following hypothetical to illustrate the point: “A disgruntled director unambiguously announces his or her intention to violate his or her fiduciary duties to the corporation and the shareholders by using inspection rights to learn trade secrets, gain access to confidential customer lists, and compete with the corporation. In this situation, does the Legislature want the judiciary to come to the aid of the disgruntled director, enforce the `absolute right’ to inspect and help the director commit a tort against the corporation? No.” (Id. at pp. 1855-1856.) Thus, the court concluded, when the evidence shows an unfettered inspection will result in a tort against the corporation, the trial court may “exercise its broad discretion under section 1603, subdivision (a) to fashion a protective order imposing just and proper conditions on the inspection.” (Id. at p. 1856.)

In Saline, supra, 100 Cal.App.4th 909, the Fourth Appellate District, Division Three, followed Havlicek in concluding that a court may place restrictions on a director’s access to corporate records when there is evidence the director intends to use the documents to commit a tort against the corporation. (Saline, at p. 914.) However, the court clarified that this principle should “only be applied in extreme circumstances where a preponderance of the evidence establishes the director’s clear intent to use the documents to commit an egregious tort—one that cannot be easily remedied by subsequent monetary damages—against the corporation.” (Id. at p. 915.)

The Saline court refused to limit the inspection rights of a director despite evidence that the director had a conflict of interest, breached fiduciary duties, breached a confidentiality agreement, and publicly defamed management, because there was no evidence to show the director intended to use the documents obtained to “disclose trade secrets, compete with or otherwise harm” the corporation.[4] (Saline, supra, 100 Cal.App.4th at pp. 912, 914.) The court reasoned: “Only the issues related to the prevention of a tort resulting from [the director’s] inspection of the documents—not the entirety of his 221*221 conduct as a director—are relevant to the question of whether limiting [his] access to corporate documents was appropriate.” (Id. at p. 914.) Without evidence that the director intended to use the documents to commit a tort against the corporation, the court held it was improper to limit the director’s access. (Id. at pp. 914-915.)

In Tritek Telecom, Inc. v. Superior Court (2009) 169 Cal.App.4th 1385 [87 Cal.Rptr.3d 455] (Tritek), a different division of the Fourth District (Division One) considered a related question: whether a director’s right to inspect corporate records should include attorney-client communications generated in defense of the director’s own suit for damages against the corporation. (Id. at p. 1387.) The court decided it should not. (Id. at pp. 1391-1392.) In that case, a disgruntled director sought to enforce his inspection rights after suing the corporation to vindicate his individual rights as a shareholder. (Id. at pp. 1387-1388.) The corporation did not dispute the director’s right to inspect corporate documents generally, but objected that the right of inspection should not include documents protected by the attorney-client privilege. (Id. at p. 1391.) The Court of Appeal agreed, concluding that a director’s inspection rights may be restricted when the director intends to misuse those rights to access privileged documents that were generated in defense of a suit for damages that the director filed against the corporation. (Id. at pp. 1391-1392.)

Here, in ruling on Fowler’s petition, the trial court followed Saline, supra, 100 Cal.App.4th 909, and concluded that a director’s right to inspect corporate records generally may be curtailed only in “extreme circumstances” in which the corporation establishes by a preponderance of the evidence the director’s intent to use the information to commit a tort against the corporation that cannot easily be remedied in a damages action. The trial court rejected Bancorp’s claim that the mere fact Fowler was involved in litigation with the corporation should defeat his inspection rights.

Bancorp argues that the trial court interpreted the scope of a director’s inspection rights too broadly. Bancorp argues that a court may deny access to corporate records whenever the director has a conflict of interest and there is a mere possibility the documents could be used to harm the corporation. We disagree.

Like the trial court, we conclude that exceptions to the general rule favoring unfettered access should only be applied in “extreme” cases where enforcing the “absolute” right of inspection would otherwise produce an absurd result. (Saline, supra, 100 Cal.App.4th at p. 915; Havlicek, supra, 39 Cal.App.4th at p. 1856.) We reach this conclusion for several reasons.

222*222 California has adopted a strong public policy favoring a broad right of access to assist directors in performing their duties in an intelligent and fully informed manner. (Saline, supra, 100 Cal.App.4th at p. 914; see also Chantiles, supra, 37 Cal.App.4th at p. 929 (conc. opn. of Crosby, J.).) The statutory scheme gives “`[e]very director … the absolute right … to inspect and copy all books, records and documents of every kind,'” and imposes no “`proper purpose'” requirement. (Havlicek, supra, 39 Cal.App.4th at p. 1851; see § 1602.) Because the denial of access to corporate records may operate to deny a director the ability meaningfully to participate in management, any exception to the policy of “absolute” access must be construed narrowly, limited to the most extreme cases where applying the literal meaning of the words would frustrate the manifest purpose of the law. (Havlicek, at pp. 1855-1856; see also Anderson Union High School Dist. v. Shasta Secondary Home School, supra, 4 Cal.App.5th at p. 279 [absurdity exception should be used only in extreme cases].)

Second, to construe the exception broadly would risk allowing the exception to swallow the rule. Differences of opinion invariably will arise among corporate directors. If a minority director can lose access to corporate records merely because the director is deemed hostile or adverse to management, the exception could remove the very protections that the “absolute right” of inspection was intended to supply. This invariably would impede inspections pursued for indisputably proper purposes, such as ascertaining the condition of corporate affairs or investigating possible mismanagement. (See, e.g., Henshaw v. American Cement Corp. (Del.Ch. 1969) 252 A.2d 125, 129.)

Third, applying the exception narrowly does not generally leave the corporation unprotected. If a director abuses a right of inspection to the detriment of the corporation, the corporation normally will have an adequate remedy in the form of an action against the director for breach of fiduciary duty. (Saline, supra, 100 Cal.App.4th at p. 916; Chantiles, supra, 37 Cal.App.4th at p. 929 (conc. opn. of Crosby, J.).)

We therefore agree with the Court of Appeal in Saline that the mere possibility that the information could be used to harm the corporation is not sufficient to defeat a director’s otherwise “absolute” inspection rights. (Saline, supra, 100 Cal.App.4th at p. 914.) While inspection rights may be curtailed when the corporation adduces evidence that a director intends to use those rights to violate his or her fiduciary duties or otherwise commit a tort against the corporation, we are not persuaded that a director’s right of inspection must be denied solely because the director has a conflict of interest or is embroiled in litigation with the corporation. Allowing a director to inspect records under such circumstances does not necessarily lead to an absurd result. To conclude otherwise would defeat the purpose of section 1602.

223*223 The cases on which Bancorp relies, Wolf, supra, 185 Cal.App.4th 903, and Tritek, supra, 169 Cal.App.4th 1385, are easily distinguishable. Wolf involved an inspection demand by a plaintiff who formerly served as a director of the defendant corporation. (Wolf, at pp. 906-907, 919.) Because the plaintiff was no longer a director, the appellate court held that the plaintiff did not have standing to enforce any inspection rights.[5] (Wolf, at p. 919.) The language in Wolf stating that the plaintiff’s threat to sue the corporation “severely undermined” his inspection rights was unsupported dictum, which we find neither compelling nor persuasive. (Ibid.)

Bancorp similarly points to a statement in Tritek suggesting that a court may limit a director’s inspection rights whenever “the director’s loyalties are divided and documents obtained by a director in his or her capacity as a director could be used to advance the director’s personal interest in obtaining damages against the corporation.” (Tritek, supra, 169 Cal.App.4th at p. 1391.) But Bancorp’s argument takes this language out of context and ignores the holding of the case, which is that a director does not have the right to access privileged documents generated in defense of a suit for damages that the director filed against the corporation. (Id. at pp. 1391-1392.) In such a scenario, the director’s intent to misuse the information to harm the corporation is self-evident. Therefore, consistent with the holdings in Havlicek, supra, 39 Cal.App.4th at pages 1855-1856, and Saline, supra, 100 Cal.App.4th at pages 914-915, it was proper to limit the director’s inspection rights to exclude the privileged documents. There has been no similar showing here—that Fowler is seeking access to documents protected by the attorney-client privilege. Thus, Tritek‘s holding simply does not apply under the facts of this case.

Bancorp also argues the trial court interpreted Fowler’s inspection rights too broadly by requiring Bancorp to show Fowler intended to use the information to commit “irremediable” harm. It contends that a threatened “irremediable” tort against the corporation is merely an “example of when a director’s inspection may be curtailed,” and not a requirement to curtail a director’s inspection rights. Bancorp argues the court should have asked only whether Fowler intended to use the information to harm the corporation.

We find it unnecessary to reach this issue because the trial court expressly found that the “preponderance of the evidence in this action does not establish Fowler’s intent to commit a tort against [Bancorp,] much less one 224*224 that is irremediable in damages.” Thus, even under a more lenient standard, Bancorp failed to carry its burden.

In sum, this is not a case in which the director’s right to inspect corporate records was alleged to conflict with constitutional or other statutory protections, as in Chantiles, supra, 37 Cal.App.4th 914. Nor is it a case involving access to privileged documents generated in defense of a suit for damages that the director filed against the corporation, as in Tritek, supra, 169 Cal.App.4th 1385. The only accusation in this case was that Fowler intended to breach his fiduciary duties in some fashion by using the records sought adversely to the corporation in the malpractice lawsuit. Under these circumstances, the trial court properly considered whether Bancorp showed by a preponderance of the evidence that a protective order was necessary to prevent Fowler from breaching his fiduciary duties or otherwise committing a tort against the corporation. (Saline, supra, 100 Cal.App.4th at p. 915; Havlicek, supra, 39 Cal.App.4th at p. 1856.)

 

B. Sufficiency of the evidence for the trial court’s ruling

 

We next consider the trial court’s finding that Bancorp failed to make a sufficient evidentiary showing to justify restrictions in this case. This presents a question of fact. (Saline, supra, 100 Cal.App.4th at p. 913; Hall v. Regents of University of California (1996) 43 Cal.App.4th 1580, 1586 [51 Cal.Rptr.2d 387]; Hartman v. Bandini Petroleum Co. (1930) 107 Cal.App. 659, 661 [290 P. 900].)

Bancorp argues that it submitted significant evidence demonstrating Fowler intended to harm the corporation by using the documents to undermine the claims against him in the malpractice litigation. The trial court disagreed, finding that Bancorp failed to carry its burden. Although the court acknowledged the divergence of interests between Fowler and Bancorp with respect to the malpractice lawsuit,[6] the court was not persuaded that Fowler’s inspection was motivated by an improper purpose or that he intended to breach fiduciary duties or otherwise commit a tort against the corporation.

It is not our function on appeal to reexamine whether a preponderance of the evidence supports Bancorp’s position. We are bound by the fundamental appellate rule that the judgment of the lower court is presumed 225*225 correct and that all intendments and presumptions will be indulged in favor of its correctness. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 [275 Cal.Rptr. 797, 800 P.2d 1227].) The appellant has the burden to overcome that presumption and show reversible error. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610 [109 Cal.Rptr.2d 256].) Where, as here, the issue on appeal turns on a failure of proof, the question for a reviewing court is whether the evidence compels a finding in favor of the appellant as a matter of law, i.e., whether the evidence was “`”of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.”‘” (Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 466 [126 Cal.Rptr.3d 301]; accord, Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761, 769 [201 Cal.Rptr.3d 268].) Bancorp falls well short of that standard.

In opposing the petition, Bancorp relied primarily on evidence that Fowler (1) previously breached his fiduciary duties in connection with the BillFloat litigation; and (2) unsuccessfully sought to obtain the same corporate records as part of his discovery in the malpractice lawsuit. The first category of “evidence,” consisting largely of unsupported allegations, had little persuasive value on the question whether Fowler was likely to use the requested corporate records to breach his fiduciary duties or otherwise commit a tort against the corporation. (Saline, supra, 100 Cal.App.4th at p. 914 [only the director’s likely use of the information is relevant, not the entirety of his or her conduct as a director].)

As to the second category of evidence, Bancorp argues that it proved Fowler’s intent to harm the corporation by using the information to undermine Bancorp’s lawsuit. The trial court, however, found otherwise. It credited Fowler’s declarations that the purpose of the inspection was related to his continuing duties as a member of Bancorp’s board of directors. “[W]e must defer to the trial court’s determinations of credibility.” (Harris v. Stampolis (2016) 248 Cal.App.4th 484, 498 [204 Cal.Rptr.3d 1].)

Moreover, even if we were to find that Fowler had an ulterior motive, Bancorp argued, and the trial court in the malpractice lawsuit agreed in its discovery ruling, that the documents Fowler sought were irrelevant to the litigation. Thus, regardless of Fowler’s motives, there is no support for Bancorp’s vague assertion that allowing Fowler access to the records would “severely undermine” its position in the lawsuit. (See Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 357 [260 Cal.Rptr.3d 1] [doctrine of judicial estoppel prohibits a party from asserting a position that is contrary to a position successfully asserted in the same or some earlier proceeding].)

226*226 On this record, we conclude the trial court did not err in finding Bancorp’s evidence insufficient to curtail Fowler’s “absolute” right to inspect corporate records.

 

DISPOSITION

 

Bancorp’s request for judicial notice is granted. Bancorp’s motion to dismiss is denied. The judgment is reversed as moot. This reversal does not imply that the judgment was erroneous on the merits, but is solely for the purpose of returning jurisdiction over the case to the trial court by vacating the otherwise final judgment solely on the ground of mootness. On remand, the trial court is directed to dismiss Fowler’s claim to a director’s right of inspection under section 1602 as moot. The trial court is directed to consider whether Fowler’s claim to a shareholder’s right of inspection under section 1600, subdivision (a) is also moot and, if not, to resolve any remaining disputes between the parties relating to that issue. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)

Robie, Acting P. J., and Hull, J., concurred.

[1] Undesignated statutory references are to the Corporations Code.

[2] The trial court sustained evidentiary objections to the Roche declaration. The rulings on those objections are not challenged in this appeal.

[3] Section 1603, subdivision (a) provides, in part: “Upon refusal of a lawful demand for inspection, the superior court of the proper county, may enforce the right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or accountants to audit the books and records kept in this state and investigate the property, funds and affairs of any domestic corporation or any foreign corporation keeping records in this state … and to report thereon in such manner as the court may direct.”

[4] The trial court’s order refused the director access to documents protected by the attorney-client privilege and work product doctrine, and the director did not challenge that condition. (Saline, supra, 100 Cal.App.4th at pp. 912-913.)

[5] In the course of explaining the plaintiff’s lack of standing, the court in Wolf suggested that a director’s inspection rights may be denied if the director is not “disinterested.” (Wolf, supra, 185 Cal.App.4th at p. 919.) We find this language to be erroneous dictum to the extent it suggests a director’s inspection rights may be denied based merely on the existence of a conflict of interest or adversarial relationship between the director and the corporation.

[6] We grant Bancorp’s request to take judicial notice that on September 21, 2021, Fowler filed a lawsuit against Bancorp challenging the proposed SoFi merger/acquisition, but we take notice of it only for purposes of the mootness claim, and not for purposes of judging the sufficiency of the evidence. (California School Bds. Assn. v. State of California (2011) 192 Cal.App.4th 770, 803 [121 Cal.Rptr.3d 696]; Duronslet v. Kamps (2012) 203 Cal.App.4th 717, 737 [137 Cal.Rptr.3d 756].)

Artus v. Gramercy Towers Condominium Assn.

Summary by Pejman D. Kharrazian, Esq.:

 

Homeowner Dr. Artus and the association were warring parties. This was the fourth lawsuit between them, this one regarding the association’s election rules and sale/leasing guidelines. Artus alleged five causes of action in her complaint against the association. Multiple claims were disposed of in different ways, including that the association fixed issues raised by Artus by amending its election rules and sale/leasing guidelines—but not exactly the way Artus wanted the association to do so. The association also brought a motion for summary judgment on the remining causes of action that resulted in a stipulation between the parties. Both sides claimed they prevailed in the lawsuit and both sought recovery of their attorneys’ fees. The court awarded neither side attorneys’ fees. The court noted that the test for who prevailed in a lawsuit is a wholistic and pragmatic test, left to the court’s discretion. The test focuses on who prevailed on a practical level by achieving its main litigation objectives.

TAKEAWAY: Don’t be unreasonably and overly litigious because courts will not look kindly upon you. In this case, the court noted that the parties had a long history of disputes and litigation and in denying both sides their attorneys’ fees the court was trying to send a message; as the court put it: “I’m trying to send a message here. And that message is, don’t run to court. Run to try to work things out. Both sides.”

***End Summary***

76 Cal.App.5th 1043 (2022)

No. A161265.

Court of Appeals of California, First District, Division Two.

 

Appeal from the San Francisco County, Superior Court No. CGC-17-561765. Honorable Harold Kahn, Judge.

Millstein & Associates, David J. Millstein and Owais Bari for Plaintiff and Appellant.

Angius & Terry, Cang N. Le, Joshua D. Mendelsohn; Tinnelly Law Group, Cang N. Le and Joshua D. Mendelsohn for Defendant and Appellant.

 

1046*1046 OPINION

 

RICHMAN, Acting P. J.—

A condominium owner sued her homeowners association alleging five causes of action, seeking injunctive and declaratory relief as to election and voting rules and sale and leasing guidelines. One cause of action fell to a demurrer, another to an anti-SLAPP motion to strike, and the parties stipulated that the last three were mooted when the association amended its rules and guidelines. Both sides moved for attorney fees as the prevailing party under the Davis-Stirling Common Interest Development Act (Civ. Code, § 4000 et seq.); the homeowner also sought fees as the successful party under Code of Civil Procedure section 1021.5. Following lengthy hearings, the trial court denied attorney fees to both sides, in a comprehensive and thoughtful order. Both sides appeal. We affirm.

 

BACKGROUND

 

 

The General Setting

 

Gramercy Towers is a residential condominium development in San Francisco. It is managed by Gramercy Towers Condominium Association (GTCA or the Association), a nonprofit mutual benefit corporation founded under the Davis-Stirling Common Interest Development Act (Davis-Stirling Act), at Civil Code section 4000 et seq. Management of GTCA is centralized in a seven-member board of directors, which retains or employs nonboard and nonmember agents and employees, including a general manager.

The governing documents of the GTCA consist of: (a) first restated articles of incorporation filed March 20, 2008, as amended in 2010; (b) first restated 1047*1047 bylaws executed March 11, 2008, and various amendments; and (c) declaration of covenants, conditions and restrictions executed February 29, 2008. GTCA also has operating rules and guidelines adopted by the board of directors.

Kazuko K. Artus, Ph.D., J.D., (Dr. Artus), owned three units at Gramercy Towers, and as such is a member of the GTCA. Over the years Dr. Artus has had various disputes with GTCA, which generated three prior lawsuits by her, one of which led to a published opinion by Division One of this court affirming a ruling by the San Francisco Superior Court that denied Dr. Artus injunctive and declaratory relief and her claim to attorney fees: Artus v. Gramercy Towers Condominium Assn. (2018) 19 Cal.App.5th 923 [228 Cal.Rptr.3d 496] (Artus I).

 

The Lawsuit Here

 

On October 10, 2017, Dr. Artus filed a complaint against GTCA, followed soon thereafter by the operative first amended complaint. It alleged five causes of action, styled as follows: “(1) Injunctive Relief and Appointment of Monitor; (2) Injunctive Relief Against Enforcement of the `Restated Election and Voting Rules’; (3) Injunctive Relief Against Enforcement of the `Sale and Leasing Guidelines’; (4) Declaratory Relief Against Enforcement of the `Restated Election and Voting Rules’ Adopted November 22, 2016; and (5) Breach of Contract and Covenant of Good Faith and Fair Dealing.”

In late December, Dr. Artus sought a preliminary injunction. Following numerous pleadings, on January 23, 2018, the Honorable Harold Kahn granted it, preliminarily enjoining GTCA from enforcing the alternative election rules during the pendency of the lawsuit. As will be seen, it was Judge Kahn, a most experienced Superior Court judge, who presided over the case through its conclusion—a vigorously contested case, it must be noted, that generated a 32-page register of actions.

In response to the complaint, GTCA had filed a demurrer and a special motion to strike (anti-SLAPP). Dr. Artus filed oppositions, GTCA replies and the matters came on for hearing on March 15. On March 27, Judge Kahn entered his order, sustaining the demurrer without leave to amend as to the first cause of action; granting the anti-SLAPP motion as to the fifth cause of action; and overruling the demurrer as to the second, third, and fourth causes of action. With only the three causes of action remaining, the case was limited to the election rules and the rules for listing condominium units for sale, narrowing significantly the focus of the litigation. As Dr. Artus would later acknowledge, “My counsel and I chose not to appeal the March 27 and 28 orders [demurrer and anti-SLAPP ruling], and thereby to narrow the scope of the instant litigation.”

 

1048*1048 GTCA Amends the Rules and Moves for Summary Judgment

 

In 2018, the GTCA revoked the 2016 alternative election rules, and in their place adopted restated and amended election rules. At the same time the board rescinded the sale and leasing guidelines that had been in place (usually referred to as the Alotte Guidelines) and adopted a new set of “Sale and Leasing Guidelines.”

GTCA brought a motion for summary judgment/adjudication on grounds that, the earlier election rules and guidelines having been rescinded, there was no longer a controversy upon which effective relief could be granted to Dr. Artus, that the case was moot. And on August 6, 2019, Dr. Artus and GTCA stipulated that the remaining causes of action were moot.

 

The Motions for Attorney Fees

 

Civil Code section 5975, subdivision (c), part of the Davis-Stirling Act, provides as follows: “In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.” And the declaration to the act provides as follows: “12.12 COSTS AND ATTORNEY’S FEES. The party who prevails in an arbitration, civil action, or other proceeding to enforce or interpret the Governing Documents shall be entitled to recover all costs and expenses, including reasonable attorney’s fees, but the arbitrator, judge or other decision maker shall have final discretion to allocate such costs and expenses between the parties in a manner that will accomplish substantial justice.”

In September 2019, both sides filed motions for attorney fees based on Civil Code section 5975, arguing that it was the prevailing party. Dr. Artus also sought attorney fees based on Civil Code section 5145, subdivision (b) and Code of Civil Procedure section 1021.5 (section 1021.5), the private attorney general doctrine.

Both sides sought over $300,000 in attorney fees, in pleadings and documents that can only be described as voluminous: from September 2 through October 18, the motions, memoranda, declarations, and exhibits in support of and opposition to the motions totaled 1,867 pages!

The motions first came on for hearing on October 8, 2019, prior to which Judge Kahn had issued a tentative ruling denying attorney fees to both sides. Both sides contested, and a lengthy hearing ensued, in the course of which it was determined that the parties would prepare charts setting forth their respective positions, with the motions to be set for further hearing.

1049*1049 Both sides filed their charts and their further positions based on those charts, adding an additional 217 pages of material filed between May 19 and June 5, 2020. So, over 2,000 pages of material had been presented to Judge Kahn when the motions came on for hearing on June 5, a lengthy hearing that generated a reporter’s transcript of 58 pages. And one reading that transcript —with Judge Kahn’s questions, his comments, and his colloquy with counsel—cannot but be impressed by the depth and breadth of Judge Kahn’s understanding of the litigation.

On September 2, Judge Kahn issued a 20-page order denying fees to both sides, with an analysis that will be discussed in more detail below in connection with the particular issue to which it pertains. Suffice to say here that Judge Kahn concluded that Dr. Artus had four main litigation objectives and that she “achieved only one of her four main litigation objectives,” limited to a procedural victory under the second objective when GTCA “changed its ways of providing notice of proposed rules changes” in amending its election rules. And even as to this, he added that Dr. Artus did not obtain any substantive victory on this second objective, and it was “the least consequential for her since, while it requires GTCA to provide better paperwork when it proposes changes to its rules, Dr. Artus'[s] success on her second main litigation objective does not significantly constrain GTCA’s ability to change its rules or what it includes in its rules.”

Judge Kahn also denied Dr. Artus’s request for fees under section 1021.5, concluding that she did not meet the “successful party” standard under that section. He further found that Dr. Artus failed to show that her lawsuit resulted in “significant benefit” to the “general public or large classes of persons.”

As to GTCA’s claim for fees, Judge Kahn “reject[ed] GTCA’s argument that it prevailed in this lawsuit because it remained free of court restrictions to change its rules.” As he saw it, GTCA’s main litigation objective “was to reduce, and hopefully end, the wasteful use of its resources in fighting Dr. Artus, particularly litigation expenses and the time of its volunteers and employees.” Given the possibility of another lawsuit over the rules amended by GTCA and “over the vehement and repeated objections of Dr. Artus [GTCA has not] reduced, much less eliminated, the governance disputes between GTCA and Dr. Artus and their attendant costs and staff and volunteer time.” Finally, Judge Kahn added, “it would be strange indeed for a defendant, as a result of his own unilateral conduct taken without a court order or other indicia of court approval, to be considered a litigation winner. If this were the case, surely defendants would frequently take such unilateral actions, declare victory, and ask for fees.”

1050*1050 On October 22, Dr. Artus filed her appeal, and on October 30, GTCA filed its cross-appeal.

 

DISCUSSION: Dr. Artus’s Appeal

 

Dr. Artus asserts two fundamental arguments on appeal, that: (1) Judge Kahn erred in finding she was not a prevailing party, and (2) she was entitled to attorney fees under Code of Civil Procedure section 1021.5.[1] Both arguments are based on a claimed standard of review that is wrong, and we thus begin with the standard of review.

 

The Standard of Review

 

Dr. Artus asserts that the standard of review is de novo, on the claimed basis that “entitlement to attorney fees under [Civil Code, former section] 1354, subdivision (f) is a question of law.”[2] The two cases she cites—Walker v. Countrywide Home Loans, Inc. (2002) 98 Cal.App.4th 1158 [121 Cal.Rptr.2d 79] and Salawy v. Ocean Towers Housing Corp. (2004) 121 Cal.App.4th 664 [17 Cal.Rptr.3d 427]—are not relevant.

The relevant cases hold that the standard of review is abuse of discretion. Rancho Santa Fe Assn. v. Dolan-King (2004) 115 Cal.App.4th 28 [8 Cal.Rptr.3d 614] is illustrative, a case involving the predecessor to the very statute involved here: “Ordinarily, an award of attorney fees under a statutory provision, such as [Civil Code, former] section 1354, subdivision (f), is reviewed for abuse of discretion.” (Rancho Santa Fe, at p. 46.) As an earlier case put it, a court’s ruling on who is the prevailing party “should be affirmed on appeal absent an abuse of discretion.” (Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568, 1574 [26 Cal.Rptr.2d 758] (Heather Farms).) As we ourselves have put it, “[t]he trial court `”`is given wide discretion in determining which party has prevailed. …'” [Citation.]'” (Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1158 [70 Cal.Rptr.2d 769].)

The same standard of review applies to Civil Code section 5145. (Rancho Mirage Country Club Homeowners Assn. v. Hazelbaker (2016) 2 Cal.App.5th 252, 260 [206 Cal.Rptr.3d 233] [suggesting that the prevailing 1051*1051 party inquiry is the same for all Davis-Stirling Act fee provisions]; see generally Artus I, supra, 19 Cal.App.5th at p. 944.) And also for fee orders in section 1021.5 cases. (Karuk Tribe of Northern California v. California Regional Water Quality Control Bd., North Coast Region (2010) 183 Cal.App.4th 330, 363 [108 Cal.Rptr.3d 40] (Karuk) [“`”normal standard of review is abuse of discretion”‘”].)

Not only do the cases demonstrate the discretionary nature of the trial court’s analysis, but other principles also come into play in a court’s discretion, two of which were in fact quoted by Judge Kahn in his order here:

(1) “`The analysis of who is a prevailing party under the fee-shifting provisions of the [Davis-Stirling] Act focuses on who prevailed “on a practical level” by achieving its main litigation objectives.’ (Rancho Mirage Country Club Homeowners [Assn.v. Hazelbaker, supra, 2 Cal.App.5th at p. 260, quoting Heather Farms, supra, 21 Cal.App.4th 1568)”; and

(2) “`[T]he test for prevailing party is a pragmatic one, namely whether a party prevailed on a practical level by achieving its main litigation objectives.’ (Almanor Lakeside Villas Owners [Assn.v. Carson (2016) 246 Cal.App.4th 761, 773 [201 Cal.Rptr.3d 268].)”

And on top of all that is the observation by our Supreme Court, that “in determining litigation success, courts should respect substance rather than form, and to this extent should be guided by `equitable considerations.'” (Hsu v. Abbara (1995) 9 Cal.4th 863, 877 [39 Cal.Rptr.2d 824, 891 P.2d 804].) In short, abuse of discretion it is—along with practicality and equity.

Dr. Artus has not shown any impracticality in Judge Kahn’s ruling. Nor any inequity. And most fundamentally, she has shown no abuse of discretion. As to what such showing requires, it has been described in terms of a decision that “exceeds the bounds of reason” (People v. Beames (2007) 40 Cal.4th 907, 920 [55 Cal.Rptr.3d 865, 153 P.3d 955]), or one that is arbitrary, capricious, patently absurd, or even whimsical. (See, e.g., People v. Bryant, Smith and Wheeler (2014) 60 Cal.4th 335, 390 [178 Cal.Rptr.3d 185, 334 P.3d 573] [“`”arbitrary, capricious, or patently absurd”‘”]; People v. Benavides (2005) 35 Cal.4th 69, 88 [24 Cal.Rptr.3d 507, 105 P.3d 1099] [ruling “`”fall[s] `outside the bounds of reason'”‘”]; People v. Linkenauger (1995) 32 Cal.App.4th 1603, 1614 [38 Cal.Rptr.2d 868] [“arbitrary, whimsical, or capricious”].) In its most recent observation on the subject, our Supreme Court said that “A ruling that constitutes an abuse of discretion has been described as one that is `so irrational or arbitrary that no reasonable person could agree with it.'” (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 773 [149 Cal.Rptr.3d 614, 288 P.3d 1237].) Those adjectives hardly describe Judge Kahn’s ruling here.

 

1052*1052 Dr. Artus Has Not Demonstrated an Abuse of Discretion

 

Dr. Artus’s first argument, that Judge Kahn erred in not finding her a prevailing party, asserts she “prevailed” in three particulars: (a) “on her election-rule challenge to force the Association to adhere to Civil Code [section] 4360’s rule-making procedure”; (b) “on causing major substantive revisions to the election rules”; and (c) “on her challenge to the sales and leasing guidelines by forcing the Association to adhere to proper rule making procedures.” She also argues that, even if she did not achieve all her objectives, a victory as to election rules requires attorney fees award under the Davis-Stirling Act.

Passing over the fact that Dr. Artus’s brief misrepresents the record in many respects, her arguments fall way short, as they do little, if anything, more than regurgitate and reassert the same arguments thoroughly analyzed— and rejected—by Judge Kahn in his analysis.

As indicated above, Judge Kahn determined that Dr. Artus had four main objectives in her lawsuit, which he described as follows, giving appropriate record references:

“(1) To obtain redress for `both current substantive and historical violations’ of the [Davis-Stirling Act] by GTCA and its `systematic and habitual mismanagement’ by the appointment of a `monitor’ to ensure that GTCA is in full compliance with its obligations under the [Davis-Stirling Act] and its governing documents. (Dr. Artus'[s] memorandum in opposition to GTCA’s anti-SLAPP motion filed February 15, 2018 pp. 9-10 (referring to this objective as the `gravamen’ of the complaint); see also the first cause of action in Dr. Artus'[s] first amended complaint and Dr. Artus'[s] application for approval of complex designation filed October 10, 2017 pp. 2-3 (explaining that this objective makes this case suitable for complex treatment)).

“(2) To enjoin the enforcement of the 2016 election rules. (Dr. Artus'[s] application and supporting papers for an order to show cause for why the court should not issue a preliminary injunction to enjoin enforcement of the `restated election and voting rules’ filed December 26, 2017; see also the second and fourth causes of action in Dr. Artus'[s] first amended complaint).

“(3) For a determination that GTCA is required to use the 2007 election rules as amended in 2014 unless Dr. Artus consents and the court permits because those rules were enshrined in the 2013 settlement agreement and the 2014 stipulated order. (Deposition of Dr. Artus taken on August 22, 2018 pp. 63 and 65; Dr. Artus'[s] August 2, 2018 email to Ms. Bires section (2); Dr. Artus'[s] September 4, 2018 email to Ms. Bires pp 5-7; Dr. Artus'[s] first amended complaint pars. 48 and 56-57).

1053*1053 “(4) For a determination that GTCA may not impose any restrictions on members and their real estate agents that Dr. Artus believes `unreasonably interfere [with] alienation rights, including but not limited to limitations on advertising, limitations on the use of the “Gramercy Towers” name and address on listing and photos of the building for marketing purposes.’ (Dr. Artus'[s] August 2, 2018 email to Ms. Bires section (7); see also the third cause of action in Dr. Artus'[s] first amended complaint and Dr. Artus'[s] September 4, 2018 email to Ms. Bires pp. 7-11 (`I can see no reason why GTCA can be allowed to seek information regarding real estate agents its members retain’)).”

Having defined the four main litigation objectives, Judge Kahn then went on to analyze them, one by one, to conclude that Dr. Artus had prevailed in only one, holding as follows: “Dr. Artus achieved only one of her four main litigation objectives. If on a practical level that one objective was equal to or greater than the other three, [Davis-Stirling Act] fees case law might support an award of fees to Dr. Artus. In my estimation, however, Dr. Artus'[s] procedural win on her second main litigation objective is nowhere close in value to the wins she failed to achieve on her first, third and fourth main litigation objectives. Indeed, of her four main litigation objectives, the second one is the least consequential for her since, while it requires GTCA to provide better paperwork when it proposes to change its rules, Dr. Artus'[s] success on her second main litigation objective does not significantly constrain GTCA’s ability to change its rules or what it includes in its rules. Accordingly, per the above pragmatic analysis of Dr. Artus'[s] main litigation objectives, I find that Dr. Artus is not entitled to an award of fees per either [Civil Code section] 5145[, subdivision] (b) or [Civil Code section] 5975[, subdivision] (c) because she only achieved a very modest portion of her main litigation objectives. (Accord Declaration of Plaintiff Kazuko K. Artus, Ph.D., J.D., in Support of Plaintiff’s Motion for Attorney’s Fees filed September 12, 2019, par. 54 (Dr. Artus acknowledged that she has `yet to accomplish my objective of having [Gramercy] comply with rules regulating it’)).”

Dr. Artus’s arguments, however lengthy they be, demonstrate nothing to the contrary. Dr. Artus’s opening brief is 44 pages long, with the arguments quoted above, arguments that fundamentally make three points: (1) she achieved her primary litigation objective when GTCA amended its election rules and guidelines effectively revoking the prior versions; (2) GTCA mooted the case once she achieved her objectives; and (3) the preliminary injunction order supports her position that she prevailed. None of these arguments is persuasive—not to mention all were rejected by Judge Kahn.

Contrary to her argument that she obtained her primary litigation objective when GTCA properly adopted new election rules by informing the 1054*1054 “purpose and effect” of those rules, the record shows that her primary objective was to compel GTCA to use only the election procedures. Dr. Artus alleged that she sought to require “GTCA to follow the Election Procedures” and to conduct elections and all other related activities under the Election Procedures; her testimony was similar: that GTCA should be only using the election procedures and “no other election rules.”

As to Dr. Artus’s claim of mootness, that she “had no choice but to agree with GTCA’s position” on mootness, Judge Kahn concluded otherwise: “Dr. Artus could have stood her ground and continued to litigate. The 2018 rules and guidelines included several provisions from the prior rules and guidelines that Dr. Artus contended were invalid in the first amended complaint. As but two examples, the 2018 election rules did not place any limits on inspector compensation and the 2018 sales and leasing guidelines contained significant restrictions on advertising members’ units. Dr. Artus'[s] claims regarding those provisions did not become moot merely because those provisions were now included in new sets of rules and guidelines. Nor, as discussed previously, did her claim—one of her main litigation objectives— that GTCA lacked authority to adopt any election rules other than the 2007/2014 rules without her consent and permission of the court become moot merely because GTCA adopted yet another set of election rules at variance from the 2007/2014 rules she contended that `GTCA cannot touch.’ (Dr. Artus'[s] May 21, 2018 email to John Zappettini.”

And Dr. Artus’s reliance on the preliminary injunction is not only unavailing, it is premised on a gross overstatement of the record. That is, Dr. Artus’s brief asserts that the preliminary injunction enjoined “GTCA from using the alternative election rules during the pendency of this lawsuit.” In fact, Judge Kahn’s preliminary injunction was limited to the one election, in early 2018, and four procedural requirements on that election under the Election Procedures: (1) the appointment of three inspectors; (2) those inspectors would appoint and oversee ballot counters; (3) abide by the communications provision of the Election Procedures; (4) and abide by the ballot retention procedures of the Election Procedures.

Dr. Artus’s attempted recharacterization of the preliminary injunction order was in fact contradicted by Judge Kahn’s order which stated: “Yet it must be kept in mind that the preliminary injunction order was a preliminary, not a final, order and only applied to a single election. As Dr. Artus knows from the 2014 lawsuit she filed against GTCA, a later trial can eviscerate an earlier preliminary injunction victory and deprive her of the ability to receive fees.”

 

1055*1055 Dr. Artus Has Not Demonstrated the Right to Attorney Fees Under Code of Civil Procedure Section 1021.5

 

As noted, Dr. Artus also sought attorney fees based on section 1021.5. Judge Kahn rejected it, concluding that Dr. Artus was not a “successful party” under that section, and for the “further reason [that she] failed to show, as required for a [section] 1021.5 fees award, that this lawsuit resulted in a `significant benefit’ to the `general public or a large class of persons.'” As he went on to explain, “Her one real win—which requires GTCA to incur greater effort in preparing its notice materials for proposed rules changes—is of questionable significance to the vast majority of GTCA members and will likely result in higher assessments to GTCA members to pay for the increased costs to `dot every i and cross every t’ in the notice materials to avoid disputes from Dr. Artus. Indeed, crediting the declarations of GTCA’s staff and volunteers it appears that few of the governance disputes raised by Dr. Artus are of concern to other GTCA members. Dr. Artus has made no contrary showing.”

Dr. Artus’s argument that she is “entitled” to attorney fees under section 1021.5, has six subparts: (1) she “obtained some benefit on a significant issue in the litigation”; (2) “interim and partial success is sufficient under [section] 1021.5”; (3) Judge Kahn “did not apply the correct test”; (4) the ruling “that the action did not confer a significant benefit on the general public, or a large class of persons was incorrect as a matter of law”; (5) “necessity and financial burden of private enforcement make [an] award appropriate”; and (6) “there was no monetary recovery.” The argument is not persuasive.

Section 1021.5 provides in pertinent part: “Upon motion, a court may award attorneys’ fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any. …”

In Karuk, supra, 183 Cal.App.4th 330, we discussed at length section 1021.5 and its operation, included within which was this explanation how an award made pursuant to this statute is reviewed: “`”The Legislature adopted section 1021.5 as a codification of the private attorney general doctrine of attorney fees developed in prior judicial decisions. … [T]he private attorney general doctrine `rests upon the recognition that privately initiated lawsuits are often essential to the effectuation of the fundamental public policies 1056*1056 embodied in constitutional or statutory provisions, and that, without some mechanism authorizing the award of attorney fees, private actions to enforce such important public policies will as a practical matter frequently be infeasible.’ Thus, the fundamental objective of the doctrine is to encourage suits enforcing important public policies by providing substantial attorney fees to successful litigants in such cases.” [Citation.]'” (Karuk, supra, 183 Cal.App.4th at p. 362.)

“Put another way, courts check to see whether the lawsuit initiated by the plaintiff was `demonstrably influential’ in overturning, remedying, or prompting a change in the state of affairs challenged by the lawsuit. (E.g., Folsom v. Butte County Assn. of Governments (1982) 32 Cal.3d 668, 687 [186 Cal.Rptr. 589, 652 P.2d 437]; RiverWatch v. County of San Diego Dept. of Environmental Health (2009) 175 Cal.App.4th 768, 783 [96 Cal.Rptr.3d 362]; Lyons v. Chinese Hospital Assn. (2006) 136 Cal.App.4th 1331, 1346, fn. 9 [39 Cal.Rptr.3d 550].) `”Entitlement to fees under [section] 1021.5 is based on the impact of the case as a whole.”‘ (Punsly v. Ho (2003) 105 Cal.App.4th 102, 114 [129 Cal.Rptr.2d 89], quoting what is now Pearl, Cal. Attorney Fee Awards (Cont.Ed.Bar 2d ed. 2008) § 4.11, p. 100.) As for what constitutes a `significant benefit,’ it `may be conceptual or doctrinal, and need not be actual and concrete, so long as the public is primarily benefited.’ (Planned Parenthood v. Aakhus (1993) 14 Cal.App.4th 162, 171 [17 Cal.Rptr.2d 510].)

“Thus, a trial court which grants an application for attorney fees under section 1021.5 has made a practical and realistic assessment of the litigation and determined that (1) the applicant was a successful party, (2) in an action that resulted in (a) enforcement of an important right affecting the public interest and (b) a significant benefit to the general public or a large class of persons, and (3) the necessity and financial burden of private enforcement of the important right make an award of fees appropriate. `”On review of an award of attorney fees … the normal standard of review is abuse of discretion. However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees … have been satisfied amounts to statutory construction and a question of law.”‘ (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175 [39 Cal.Rptr.3d 788, 129 P.3d 1], quoting Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142 [118 Cal.Rptr.2d 569].)” (Karuk, supra, 183 Cal.App.4th at p. 363. fn. omitted.)

Applying those rules, we went on in Karuk to reverse an award of $138,000 in attorney fees, concluding that three of the statutory requisites to an award under section 1021.5 were absent. (Karuk, supra, 183 Cal.App.4th at p. 364.) Likewise here.

1057*1057 It is perhaps enough to note that Dr. Artus does not specifically address the threshold requisite of demonstrating she was a “successful party.” Nor does she demonstrate any significant benefit to the general public or a large class of persons.

Bowman v. City of Berkeley (2005) 131 Cal.App.4th 173, 175-176 [31 Cal.Rptr.3d 447] (Bowman), cited by Dr. Artus in claimed support of her argument she achieved a significant benefit, is not to the contrary. The facts there included a petition by a group of owners to overturn the city’s approval of a housing project for seniors, which succeeded in overturning the initial approval. The project was ultimately reapproved and the trial court denied the remainder of the groups’ claims. (Id. at p. 177.) The trial court thereafter granted attorney fees in connection with the due process achievement. Division Four of this court affirmed. Doing so, the court noted the redo of the approval by the city, in light of the plaintiffs’ petition, “resulted in a great deal of additional public input on the project, including substantial new written submissions, and oral statements to the city council, from city staff as well as proponents and opponents of the project”; and the trial court determined “`both parties used the opportunity to supplement the administrative record to provide additional evidence intended to sway findings made by the council members.'” (Id. at p. 180.) The setting here is a far cry.

Here, only Dr. Artus filed suit to challenge GTCA’s governance. She did not show that other members objected to GTCA’s ways or its rules. And she did not achieve any significant benefit to other members when GTCA undertook to amend its election rules and sales guidelines, let alone benefit to the public.

Likewise unavailing is La Mirada Avenue Neighborhood Assn. of Hollywood v. City of Los Angeles (2018) 22 Cal.App.5th 1149 [232 Cal.Rptr.3d 338] (La Mirada), where the plaintiffs filed writ petitions to invalidate variances granted by the city in approving a Target retail store and obtained a judgment “invalidating six of the eight municipal code variances, enjoining any actions `in furtherance of’ those variances, and `immediately… restrain[ing] … all construction activities’ [and] also authorized plaintiffs to seek attorney’s fees.” Both parties appealed, and during the appeal, per Target’s urging, the city amended its zoning which mooted the appeal. (Id. at p. 1154.) The court dismissed the appeals as moot but left the judgment intact and ultimately awarded the plaintiff attorneys fees. (Id. at p. 1155.) The significant benefit was an order requiring the city to comply with the legal requirements to grant the variance. (Id. at pp. 1158-1159.)

Unlike in La Mirada, Dr. Artus did not obtain a judgment invalidating any of GTCA’s governance that she challenged; the mootness of this action was 1058*1058 not found by Judge Kahn but by Dr. Artus’s stipulation; and GTCA did not take any action to change its rules because of Dr. Artus’s urgings.

Dr. Artus argues that partial or interim success is enough for an award of attorneys fees under section 1021.5, citing to Bowman, supra, 131 Cal.App.4th at page 178 and La Mirada, supra, 22 Cal.App.5th at page 1160. To the contrary, as Dr. Artus herself knows, she has already failed on a similar argument in Artus I, supra, 19 Cal.App.5th at page 927, where Division One noted the “well-established principles that fees and costs are ordinarily not granted for interim success, and that the prevailing party is determined, and fees and costs awarded, at the conclusion of the litigation.”

As indicated, Dr. Artus makes two other arguments, numbered six and seven: (6) “Trial court abused its discretion in denying fees to [Dr. Artus] because she stopped litigating after the controversy was mooted by GTCA,” and (7) “The Court of Appeal should reconsider or reformulate the interim attorney’s fees rules as it applies to associations that moot controversies.” Neither argument merits discussion. The third argument, all of five lines, has no support. And the fourth argument essentially asks us to change some language in the earlier opinion by our colleagues in Division One. It is most inappropriate.

 

DISCUSSION: GTCA’s Appeal

 

 

GTCA Has Not Shown an Abuse of Discretion

 

Cross-appealing Judge Kahn’s denial of attorney fees to it, GTCA has filed a 22-page opening brief that has an introduction, a statement of facts and procedural history, and fewer than 12 pages described as “discussion,” fewer than two pages of which could even be considered argument.

The discussion begins with this assertion: “GTCA’s issue on appeal is the trial court erred in ruling that its litigation objective was to reduce its resources and end the fighting with Dr. Artus; rather, GTCA’s litigation objective was to prevent Dr. Artus from dictating how GTCA should operate and what rules it should adopt. To that end, it prevailed and should be awarded attorneys’ fees per Civil Code section 5975, subdivision (c) and its Declaration.”

And what might be called the argument that follows consists of these three brief paragraphs:

“The trial court’s basis for determining GTCA’s litigation objective drew from `GTCA’s memorandum in support of its anti-SLAPP motion to strike 1059*1059 filed January 16, 2018′ and declarations in support. The trial court found these declarations `replete with extremely high costs that GTCA has incurred in both its in-court and out-of-court disputes with Dr. Artus.’ The arguments and declarations from the anti-SLAPP motion on the use of GTCA’s resources and costs fighting Dr. Artus'[s] continuing disputes with the board were made in the context of the Association’s argument that the matter was of public interest to the community to warrant protection of the anti-SLAPP statute. See [Code of Civil Procedure] [section] 425.16. Anti-SLAPP public interest arguments do not equate to GTCA’s primary goal in this litigation was merely to reduce the use of the community’s resources to fight Dr. Artus. If that was the goal, GTCA would have capitulated early in the litigation without any strategic motion practice on a demurrer, anti-SLAPP motion, discovery, or summary judgment motion; or GTCA would have sought early settlement.

“Instead, GTCA’s stance and objective throughout the litigation was to not give into Dr. Artus'[s] demands or desires for GTCA to be governed by her terms and her rules, and for Dr. Artus to not obtain any relief on her claims that GTCA was operating improperly. As stated by GTCA’s president: `It has been the Board’s objective in this litigation to not allow a single owner to dictate how the Board should function or bully its decision-making.’

“Thus, even under an abuse of discretion standard, the trial court’s determination of GTCA’s litigation objective and that it did not prevail on that objective cannot stand.”

That is essentially it. It is unpersuasive, as it utterly fails to come to grips with Judge Kahn’s detailed analysis, which includes the following: “Because this lawsuit ended as a result of GTCA’s unilateral decision to adopt revised election rules and sales and leasing guidelines, which GTCA could have done at any point in the lawsuit and for which it needed no order or approval from the court, on a pragmatic and practical level GTCA did not achieve its litigation objectives. It would be strange indeed for a defendant, as a result of its own unilateral conduct taken without a court order or other indicia of court approval, to be considered a litigation winner. If this were the case, surely defendants would frequently take such unilateral actions, declare victory, and ask for fees. In my almost 40 years as a civil litigator and a judge handling civil cases, I have never seen anyone do this before. And, despite my extensive efforts to find such a case, I could not locate any published California decision which holds or suggests that a defendant can be a prevailing party for purposes of a fees award as a result of its own unilateral actions that moot the plaintiff’s claims. I therefore reject GTCA’s argument that it prevailed in this lawsuit because it remained free of court restrictions to change its rules. Cutting to the chase, the fatal defect in GTCA’s argument 1060*1060 is that it remains free of court restrictions because it took unilateral action to avoid rulings on court restrictions and, in doing so, simply `kicked the can down the road’ as to whether a court would place restrictions on its rule changes.

“The three cases cited by GTCA to support its position that it prevailed in this lawsuit are readily distinguishable. In Almanor [Lakeside Villas Owners Assn. v. Carson[, supra,] 246 Cal.App.4th 761 …] the determination that a homeowners’ association was the prevailing party came after a trial where the parties fully litigated the claims and cross-claims of both parties. In Salehi v. Surfside III Condominium [Owners Assn.] (2011) 200 Cal.App.4th 1146 [132 Cal.Rptr.3d 886] the court held that the defendant homeowners’ association was a prevailing party because the plaintiff dismissed his claims on the eve of trial due to the unavailability of a witness without seeking a continuance. In Villa De La Palmas Homeowners [Assn. v. Terifaj] (2004) 33 Cal.4th 73 [14 Cal.Rptr.3d 67, 90 P.3d 1223] a plaintiff homeowners’ association was the prevailing party because it obtained an injunction which achieved its main litigation objective. Unlike this lawsuit, in none of the cases relied on by GTCA did the prevailing party association take any action outside the lawsuit, unilateral or otherwise, that precipitated dismissal of its member’s claims based on mootness or any similar ground.[[3]]

“In all events, viewed on a pragmatic and practical level GTCA’s main litigation objective in this lawsuit, as it appears to have been in most or all of its dealings with Dr. Artus on governance issues, was to reduce, and hopefully end, the wasteful use of its resources in fighting Dr. Artus, particularly litigation expenses and the time of its volunteers and employees. (See GTCA’s memorandum in support of its anti-SLAPP motion to strike filed January 16, 2018 p. 4 (in two years GTCA received over 400 emails from Dr. Artus with complaints about GTCA’s governance. `Nine out of ten complaints the Association [GTCA] receives from its members are from [Dr. Artus]. … Considerable time and community resources are expended to ensure each of [Dr. Atrus’s] requests are addressed out of fear that any issue, no matter how trivial, may result in litigation.’)) The declarations of GTCA’s representatives are replete with the extremely high costs that GTCA has incurred in both its in-court and out-of-court disputes with Dr. Artus. As the August and September 2018 emails by Dr. Artus to Ms. Bires and the many declarations of Dr. Artus filed in this lawsuit reveal, neither this lawsuit nor GTCA’s unilateral adoption of revised election rules and sales and leasing guidelines in 2018 over the vehement and repeated objections of Dr. Artus has reduced, much less eliminated, the governance disputes between GTCA and Dr. Artus and their attendant costs and staff and volunteer time. In this 1061*1061 lawsuit, GTCA turned tail, instead of addressing Dr. Artus'[s] claims on the merits. It should not be rewarded for doing so by an award of fees.”

We end our opinion quoting the concern, the counsel, of Judge Kahn: “Sad to say, unless the past is a poor predictor of the future or the parties are no longer able or willing to devote the huge resources they have devoted previously, it is likely that there will be a fifth Artus v. GTCA lawsuit. This fourth lawsuit, especially the way it concluded, accomplished little or nothing to prevent that from occurring. In that regard, I conclude this order by repeating a statement I made almost three years ago at the final hearing in the third Artus v. GTCA lawsuit: `I’m aware that there has been a long history of disputes between Dr. Artus and this association, I’m trying to send a message here. And that message is, don’t run to court. Run to try to work things out. Both sides.” To that we say “Amen.”

 

DISPOSITION

 

The order denying attorney fees is affirmed. Each side shall bear its own costs.

Stewart, J., and Mayfield, J.,[*] concurred.

[1] As briefly noted below, Dr. Artus also makes two other arguments, one of which has no support, the other of which requires little discussion.

[2] We note that Dr. Artus mentions only Civil Code, former section 1354, subdivision (f) in her argument for a de novo standard of review and fails to mention any other statute under which she sought fees. We also find quizzical her reference to “section 1354,” as effective January 1, 2014, as part of the renumbering and reorganization of the Davis-Stirling Act, Civil Code section 1354 was renumbered as 5975.

[3] Salehi and Almanor are the two cases GTCA relies on here.

[*] Judge of the Mendocino Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

Leonard SPORN, et al., Plaintiffs, v. OCEAN COLONY CONDOMINIUM ASSOCIATION, et al., Defendants.

173 F.Supp.2d 244 (2001)

Leonard SPORN, et al., Plaintiffs,
v.
OCEAN COLONY CONDOMINIUM ASSOCIATION, et al., Defendants.

No. 00-1179 (JEI).
United States District Court, D. New Jersey.
October 29, 2001.
245*245 246*246 247*247 Taylor, Boguski & Greenberg, by Robert Aaron Greenberg, Larchmont Law & Professional Center, Mount Laurel, NJ, for Plaintiffs.

Stark & Stark by David J. Byrne, Princeton, NJ, for Defendants.

 

OPINION

 

IRENAS, District Judge.

Presently before the Court is the Motion for Summary Judgment of Defendants Ocean Colony Condominium Association, Carol Ramchandani, Charles Haines, Betsy Beaver, Fred Shoyer and Frank Pisaturo. For the reasons set forth below, Defendants’ motion is granted.

 

I.

 

Plaintiffs Leonard Sporn (“Mr.Sporn”), Dolores Sporn (“Mrs.Sporn”), Amelia Thomas (“A.Thomas”) and Rosemarie Thomas (“R.Thomas”) were unit owners at the Ocean Colony Condominium in Ocean City, New Jersey. The dispute out of which this action arose began in January 1998 when Defendant Ocean Colony Condominium Association (“the Association”), through its Board of Trustees, a number of whom are named as defendants in this case, issued a regulation in which an “Adult Lounge”, inaccessible to children, was created at Ocean Colony. (Compl.¶ 15). In response to this regulation, Plaintiffs filed, in January 1999, a petition with the United States Department of Housing and Urban Development (“HUD”) seeking a ruling on whether the exclusion of children from the adult lounge violated the provisions of the Fair Housing Act (“FHA”), 42 U.S.C. § 3601, et seq. According to Plaintiffs, Defendants allegedly responded to this complaint by engaging in “a campaign to discredit the plaintiffs with other unit owners” and “shunning” and “ostracizing” Plaintiffs. (Compl. at ¶ 17).

In March 2000, Plaintiffs filed the instant action against the Association and several individual members of the Board of Trustees, alleging that the creation of the adult lounge violated the FHA and that Defendants’ “retaliatory” actions constituted 248*248 unlawful interference with the exercise and enjoyment of Plaintiffs’ FHA rights. (Compl.¶¶ 28, 31).

In addition, Plaintiffs assert a number of claims related to the Defendants’ treatment of Leonard Sporn. Mr. Sporn suffers from severe spinal stenosis and is confined to a wheelchair. Plaintiffs assert that Defendants failed, in a number of ways, to comply with their obligations under the FHA and New Jersey law to “reasonably accommodate” Mr. Sporn’s handicap. Specifically, Plaintiffs claim that Defendants refused to honor Mr. Sporn’s request that he be provided with a handicapped parking space adjacent to a wheelchair-accessible entrance to the Condominium, and failed, in connection with renovations to the Condominium made in 1999, to provide handicapped access to the building and to the common area restrooms. (Compl.¶¶ 22-26).

Plaintiffs’ final claim is that the actions of the Defendants constitute intentional and negligent infliction of emotional distress.

This Court has jurisdiction over the matter pursuant to 28 U.S.C. § 1331, 1367.

 

II.

 

“[S]ummary judgment is proper `if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)).

 

III.

 

 

A.

 

The Fair Housing Act, 42 U.S.C. § 3601, et seq., passed as Title VIII of the Civil Rights Act of 1968 and amended by the Fair Housing Amendments Act (FHAA) of 1988 to protect handicapped persons, provides that it is unlawful “to discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services in connection with such a dwelling, because of the handicap of that person….” 42 U.S.C. § 3604(f)(2). The relevant provisions of the FHA’s definition of “discrimination” make unlawful:

(B) A refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling; [and]

(C) in connection with the design and construction of covered multifamily dwellings for first occupancy after the date that is 30 months after September 13, 1988, a failure to design and construct those dwellings in such a manner that the public use and common use portions of such dwellings are readily accessible to and usable by handicapped persons [and] all the doors designed to allow passage into and within all premises within such dwellings are sufficiently wide to allow passage by handicapped persons in wheelchairs.

42 U.S.C. §§ 3604(f)(3)(B), (C). Although Plaintiffs fail to cite to any specific provisions FHA in their complaint and cite to inapplicable provisions of the Act in the single paragraph discussing the issue in their response to the instant motion, it appears from their references to the denial of a “lawful accommodation” and their use of language identical to that in § 3604(f)(3)(C) that their claims are properly regarded as brought under the sections cited above.

249*249 The evidence offered by Plaintiffs relating to the inadequacy of Defendants’ renovations under 3604(f)(3)(C) is wholly insufficient to survive a motion for summary judgment. Even assuming that the subsection’s requirements relating to the design and construction of “covered multifamily dwellings for first occupancy” apply to renovations such as those alleged here (a proposition for which Plaintiffs cite no legal authority), Plaintiffs have not offered a single shred of evidence relating to the nature of renovations undertaken, the condition of the facilities at issue prior to the renovations or the alleged inadequacies of the Condominium after the renovations. As the Supreme Court has noted, “a party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but … must set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citation omitted). Here, Plaintiffs have failed entirely to meet this requirement.[1]

Plaintiffs claim of denial of reasonable accommodations under § 3604(f)(3)(B) is similarly without merit. While it is true that the FHA’s reasonable accommodation requirement “can and often will” involve the imposition of some costs upon a landlord, Shapiro v. Cadman Towers, Inc., 51 F.3d 328, 334-335 (2d Cir.1995); see also, Assisted Living Associates of Moorestown v. Moorestown Township, 996 F.Supp. 409, 434-435 (D.N.J.1998), accommodation is required only where such measures “may be necessary to afford such a [handicapped] person equal opportunity to use and enjoy a dwelling” and need only be “reasonable.” 42 U.S.C. § 3604(f)(3)(B); see also, Gavin v. Spring Ridge Conservancy, Inc., 934 F.Supp. 685, 687 (D.Md. 1995) (emphasizing that FHA does not require accommodation wherever convenient or desired, but only where necessary). Given the dearth of evidence offered by Plaintiffs relating to necessity of Leonard Sporn’s requested accommodations and the rather extensive evidence offered by the Defendants relating to the reasonableness of their efforts to accommodate Mr. Sporn, Plaintiffs claim cannot survive the instant motion.

As mentioned, Plaintiffs have offered no evidence whatsoever regarding the 1999 renovations to the Condominium or Plaintiff’s claims relating thereto. Therefore, those claims cannot stand, regardless of the theory offered to support them. Accordingly, the only remaining issue in this area relates to Mr. Sporn’s claim of entitlement to a handicapped parking space.

It has been recognized on numerous occasions that the FHA may, in certain cases, entitle a handicapped tenant to a reserved parking space adjacent to the tenant’s dwelling. See, e.g., Jankowski Lee & Associates v. Cisneros, 91 F.3d 891, 895-896 (7th Cir.1996); Shapiro, 51 F.3d at 335; Hubbard v. Samson Management Corporation, 994 F.Supp. 187, 192 (S.D.N.Y.1998); Trovato v. City of Manchester, 992 F.Supp. 493, 498 (D.N.H. 1997); see also, 24 C.F.R. § 100.204, Example (2) (2001). Although Plaintiffs have not offered any evidence of the specific 250*250 nature of Mr. Sporn’s handicap, or of the inadequacy of the parking arrangements that pre-existed his request for accommodation, Defendants do not appear to challenge the necessity of Plaintiff’s accommodation, but instead focus on the reasonableness of the accommodations they attempted to provide. (See Def. Br. at 26).

“The reasonable accommodation inquiry is highly fact-specific, requiring a case-by-case determination.” Hovsons, Inc. v. Township of Brick, 89 F.3d 1096, 1104 (3d cir.1996) (quoting United States v. California Mobile Home Park Management Co., 29 F.3d 1413, 1418 (9th Cir. 1994)). Here, while Plaintiffs have provided no evidence relating to Mr. Sporn’s request for a handicapped parking space, Defendants have demonstrated that they did, in fact, take significant steps to provide Mr. Sporn with an acceptable accommodation and never “refused” to permit such accommodations.

The FHA entitles a handicapped individual to “equal opportunity to use and enjoy a dwelling.” 42 U.S.C. § 3604(f)(3). Accordingly, “an accommodation should not `extend a preference to handicapped residents [relative to other residents], as opposed to affording them equal opportunity'” and “accommodations that go beyond affording a handicapped tenant `an equal opportunity to use and enjoy a dwelling’ are not required by the Act.” Hubbard, 994 F.Supp. at 190 (citing United States v. California Mobile Home Park, 29 F.3d 1413, 1418 (9th Cir.1994) and Bryant Woods Inn, Inc. v. Howard Cty. 124 F.3d 597, 605 (4th Cir.1997)). In this case, in response to Leonard Sporn’s requests for a handicapped parking, the Association adopted a “Handicapped Parking Policy” in December 1999. (Beaver Cert. ¶ 25). This policy provided that “handicapped parking spaces [defined as spaces closer to the Condominium entrance] shall be provided to residents” provided that any resident seeking such a space “trade in their deeded parking space for an Association owned space closer to the building entrance.” (Id., Ex. D) On its face, this policy grants the same rights to handicapped tenants as it does non-handicapped residents. In order to prevail on his discrimination claim, therefore, Mr. Sporn must demonstrate that the Association’s actions toward him individually constituted a refusal to reasonably accommodate his handicap. This he cannot do. According to his own testimony, the problems that arose between the Association and Mr. Sporn began when Sporn demanded that he be provided a handicapped space (a proposal to which Defendants agreed) but refused to give up his non-handicapped, deeded space as required by the Handicapped Parking Policy. (L. Sporn Dep. at 58-59). When asked why he needed two spaces, Sporn did not offer any explanation related to his handicap, but instead responded, “because during the summertime we couldn’t get any parking for any of our family that came down.” (Id.). These comments reveal that Sporn’s request for “reasonable accommodation” was really a request for accommodation coupled with a demand for special treatment. Thus, Sporn’s refusal to accept the Association’s proposed accommodation cannot provide the basis for an FHA discrimination claim. As the Seventh Circuit noted in Jankowski, the FHA only creates a right to a “reasonable accommodation,” it “does not create a right to an assigned handicapped space.” 91 F.3d at 896. Accordingly, the Court determines that the actions of the Association in negotiating with Mr. Sporn and his attorneys about the creation of a handicapped space (see Beaver Cert. at ¶¶ 11-24), promulgating non-discriminatory handicapped parking regulations and 251*251 offering a handicapped space to Mr. Sporn several times even after he had rejected the Association’s proposal (see letters of Steven Scherzer to Carl Bowman, Beaver Cert., Ex. F) constitute a “reasonable accommodation” within the meaning of § 3604 of the Fair Housing Act and that Defendants’ Motion for Summary Judgment as to the claims contained in Count III of Plaintiffs’ Complaint should therefore be granted.

 

B.

 

The primary contention involved in Plaintiffs’ claim of unlawful interference with FHA rights appears to be that Defendants’ actions in “shunning” them, allegedly in retaliation for Plaintiffs’ filing of their HUD complaint, constituted a violation of the FHA, 42 U.S.C. § 3617. Section 3617 provides that:

It shall be unlawful to coerce, intimidate, threaten or interfere with any person in the exercise or enjoyment of, or on account of his having exercised or enjoyed, or on account of his having aided or encourage any other person in the exercise or enjoyment of, any right granted or protected by section 3603, 3604, 3605 or 3606 of this title.

42 U.S.C. § 3617.

As one district court has noted, a plaintiff’s “subjective beliefs of intentional discrimination and retaliation” are “of course insufficient to show an intentional discriminatory animus.” Gavin, 934 F.Supp. at 687. In their brief, Plaintiffs point to the deposition testimony of a number of unit owners (including Plaintiffs) and to statements made by Board member Carol Ramchandani as evidence of the retaliatory actions taken by Defendants. This evidence, even when viewed in the light most favorable to Plaintiffs, amounts to nothing more than repeated statements of Plaintiffs’ subjective beliefs of discrimination and is therefore insufficient to survive summary judgment.[2]

Even if there were sufficient evidence to support an inference that Plaintiffs were “shunned” in response to their HUD complaints, such actions simply do not constitute “coercion, intimidation, threats or interference” within the meaning of § 3617. The Fair Housing Act is remedial legislation designed to address the very important goal of providing accessibility to housing without regard to race, color, religion, sex, familial status, national origin or disability. See generally, 42 U.S.C. §§ 3601, 3604. Consistent with this goal, the prohibitions of § 3617 operate to ensure that situations that need to remedied can be brought to the attention of those with the power to effectuate the necessary changes. Section 3617 does not, however, purport to impose a code of civility on those dealing with individuals who have exercised their FHA rights. Simply put, § 3617 does not require that neighbors smile, say hello or hold the door for each other. To hold otherwise would be to extend § 3617 to conduct it was never intended to address and would have the effect of demeaning 252*252 the aims of the Act and the legitimate claims of plaintiffs who have been subjected to invidious and hurtful discrimination and retaliation in the housing market.

While “the language `interfere with’ has been broadly applied to `reach all practices which have the effect of interfering with the exercise of rights’ under the federal fair housing laws”, Michigan Advocacy Serv. v. Babin, 18 F.3d 337, 347 (6th Cir.1994), a brief look at the cases in which § 3617 violations have been found demonstrates that “shunning” is not the kind of behavior that interferes with FHA rights. See, e.g., Fowler v. Borough of Westville, 97 F.Supp.2d 602 (D.N.J.2000) (use of building code and police harassment to drive handicapped plaintiffs out of their special residences); Byrd v. Brandeburg, 922 F.Supp. 60 (N.D.Ohio 1996) (tossing of Molotov cocktail onto porch of African-American residents); United States v. Sea Winds of Marco, Inc., 893 F.Supp. 1051 (M.D.Fla.1995) (requiring Hispanic tenants to wear special wrist bands and subjecting them to excessive monitoring and racially-derogatory remarks); Johnson v. Smith, 878 F.Supp. 1150 (N.D.Ill.1995) (cross burned in front yard of African-American family and brick thrown through their window); People Helpers v. City of Richmond, 789 F.Supp. 725 (E.D.Va.1992) (police “bullied” their way into and selectively searched handicapped and African-American plaintiffs’ apartments). While this Court has, as Plaintiffs note, recognized that “violence or physical coercion is not a prerequisite to a claim under § 3617,” Fowler v. Borough of Westville, 97 F.Supp.2d 602 (D.N.J.2000), the conduct complained of must nevertheless be of sufficient magnitude to permit a finding of intimidation, coercion, threats or interference. See, e.g., Babin, 18 F.3d at 347, 348 (holding that actions of defendants in engaging in economic competition did not “rise to the level of interference with the rights of plaintiffs” and that actions of neighbors, while interfering with plaintiff’s negotiations, were not “direct enough” to state a claim for violation of § 3617). That said, the actions allegedly taken by Defendants do not, even if taken for the reasons that Plaintiffs suggest, constitute interference with any rights protected by § 3617.[3]

 

C.

 

Plaintiffs’ final FHA claim is based on the designation of part of the common area of the Condominium as an “adult lounge.” Plaintiffs seek an injunction “prohibiting the defendant from prohibiting reasonable access to all person in common areas regardless of age.” (Compl.¶ 51(a)). However, it is undisputed that the former Adult Lounge was made accessible to all residents by the Board on July 10, 1999, some eight months prior to the filing of the instant suit. Accordingly, there is no justiciable case or controversy on this issue and Defendants’ Motion for Summary Judgment will be granted. See City of Los Angeles v. Lyons, 461 U.S. 95, 111, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983) (“The equitable remedy is unavailable absent a showing of irreparable injury, a requirement that cannot be met where there is no showing of any real or immediate threat that the plaintiff will be wronged again.”); Anderson v. Davila, 125 F.3d 148, 163 (3d Cir.1997) (“A party seeking injunctive relief 253*253 must demonstrate that there exists some cognizable danger of recurrent violation of its legal rights.”) (citation omitted). Further, to the extent that Plaintiffs are seeking damages on their claim regarding the adult lounge (it is unclear whether they are doing so), their claim fails as they have not demonstrated that they suffered any injuries as a result of the Association’s policy. (See A. Thomas Dep. at 24, 31-34; R. Thomas Dep. at 16, 21; L. Sporn Dep. at 15-17; D. Sporn Dep. at 20).

 

IV.

 

Plaintiffs also assert a number of state law claims related to their dispute with the Association. Although Plaintiffs do not cite to any specific provisions of New Jersey law to support their contentions, they appear to argue that Defendants’ actions violated the provisions of the New Jersey Law Against Discrimination (“LAD”), N.J.S.A. 10:5-1, et seq. Since Plaintiffs in their brief focus exclusively on their Fair Housing Act claims and do not clarify the vague assertions made in their Complaint, Defendants (and the Court) are forced to speculate as to the specific claims asserted under the LAD. While Defendants point to a number of provisions of the LAD on which Plaintiffs claims could be based, Plaintiffs do not address these arguments in their response. Accordingly, the Court will assume that Defendants have correctly identified the specific LAD provisions implicated by Plaintiffs’ claims.

The provision of the LAD which deals specifically with the accommodation of handicapped persons in housing is N.J.S.A. 10:5-12.4, which states that “a failure to design and construct any multi-family dwelling of four units or more in accordance with barrier free standards promulgated by the Commissioner of Community Affairs … shall be an unlawful discrimination.” As with Plaintiffs’ FHA claims, there has been offered no evidence whatsoever regarding the legal obligations of Defendants to comply with 10:5-12.4 or the actions that Defendants did or did not take with regard to the 1999 renovations. Accordingly, any claims that Plaintiffs intended to assert in this area cannot survive the instant motion.

Plaintiffs also contend that the filing of their HUD complaint was protected by the LAD and that Defendants’ actions interfered with that protected conduct. Like the FHA, the LAD contains an anti-retaliation provision that makes it unlawful to “take reprisals against any person because that person has opposed any practices or acts forbidden under this act … or to coerce, intimidate, threaten or interfere with any person in the exercise or enjoyment of … any right granted or protected by this act.” N.J.S.A. 10:5-12. Although “it is well-established that the LAD is intended to be New Jersey’s remedy for unacceptable discrimination and is to be construed liberally,” Franek v. Tomahawk Lake Resort, 333 N.J.Super. 206, 217, 754 A.2d 1237 (App.Div.2000); see also, Cedeno v. Montclair State Univ., 163 N.J. 473, 478, 750 A.2d 73 (2000), the Court would simply be stretching the definition of “interference” too far if it were to hold that a lack of friendliness and civility between neighbors caused by a dispute over the use of their Condominium constitutes a violation of the LAD.[4] While there 254*254 are, no doubt, a variety of ways that these Defendants could have unlawfully retaliated against Plaintiffs under the LAD, mere “shunning”, without more, is not one of them.

Finally, Plaintiffs assert claims for intentional and negligent infliction of emotional distress against Defendants. To state a claim for intentional infliction of emotional distress under New Jersey Law, a plaintiff must demonstrate severe emotional distress resulting from conduct that is “so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.” Buckley v. Trenton Saving Fund Society, 111 N.J. 355, 367, 544 A.2d 857 (citing Restatement (Second) of Torts, § 46). In this case, Defendants’ actions in response to what they perceived as unnecessary antagonism and meritless and expensive litigation created by Plaintiffs simply cannot be said to rise to the level of outrageous conduct required before a recovery for intentional infliction of emotional distress is permitted. Thus, summary judgment on this claim is appropriate.

As to Plaintiffs’ claim for negligent infliction of emotional distress, it should be noted that New Jersey recognizes two types of claims in this area. The first group of claims encompasses cases “in which a person who is the direct object of a tortfeasor’s negligence experiences severe emotional trauma as a result of the tortfeasor’s negligent act or omission.” Gendek v. Poblete, 139 N.J. 291, 296, 654 A.2d 970 (1995). Second, a plaintiff may prevail on a so-called “indirect claim” for negligent infliction of emotional distress where “a person, not otherwise a direct object of a tortfeasor’s negligence, experiences severe emotional distress when another person suffers serious or fatal injuries as a result of that negligence.” Id. As there are no “serious or fatal” injuries involved in this case, Plaintiffs’ claims must treated as “direct”.

The analysis of direct claims of negligent infliction of emotional distress “involves traditional concepts of duty, breach and causation” and “determining defendant’s negligence depends on whether defendant owed a duty of care to the plaintiff, which is analyzed in terms of foreseeability.” Williamson v. Waldman, 150 N.J. 232, 239, 696 A.2d 14 (1997). In this case, it cannot be said that Defendants conduct breached any duty of care owed to Plaintiffs. Plaintiffs allege, in essence, that Defendants were obligated to be as friendly to Plaintiffs after the filing of the HUD complaints and the instant lawsuit as they were before. This contention simply has no basis in the law of negligence. Any duty of care that exists between neighbors simply does not extend to the niceties of day-to-day interactions. In this case, Plaintiffs and Defendants were involved in a dispute over the regulations and policies of the Association at Ocean Colony. This dispute had dragged on for a number of years and had cost each side thousands of dollars in legal fees. Given that context, it cannot be said that the Defendants’s conduct in ignoring Plaintiffs or failing to say hello in the hallways gives rise to a claim for negligent infliction of emotional distress. Defendants neither owed Plaintiffs a duty of civility, nor would they, under the circumstances, be considered to have breached any such duty were one to exist. Accordingly, Plaintiff claim for negligent 255*255 infliction of emotional distress must be dismissed.

 

V.

 

In conjunction with their response to the instant motion, Plaintiffs filed a request that, rather than deciding the case against them on the merits, the Court permit Plaintiffs to voluntarily dismiss their case without prejudice under Rule 41 of the Federal Rules of Civil Procedure. Rule 41(a)(2) provides that once a defendant files an answer or motion for summary judgment, a plaintiff may not voluntarily dismiss its action “save upon order to the court.” Generally, a motion for dismissal “should not be denied absent substantial prejudice to the defendant.” Johnston Development Group, Inc. v. Carpenters Local Union No. 1578, 728 F.Supp. 1142, 1146 (D.N.J.1990) (Brotman, J.) (quoting Andes v. Versant Corp., 788 F.2d 1033, 1036 (4th Cir.1986)); see also, 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2364 (2d ed.1995). In determining whether a voluntary dismissal is likely to result in prejudice to the defendant, the factors to be considered include “the expense of a second litigation, the effort and expense incurred by a defendant in preparing for trial in the current case, the extent to which the current case has progressed, and plaintiff’s diligence in bringing the motion to dismiss.” Palmer v. Security National Bank, 2001 WL 877584, at * 1 (E.D.Pa. June 13, 2001)(citing Maleski v. DP Realty Trust, 162 F.R.D. 496, 498 (E.D.Pa.1995)). An examination of these factors as they relate to this case leads to the conclusion that Plaintiffs’ motion should be denied. This case was originally filed in March 2000 and the dispute underlying it has been going on for almost four years. In addition, the instant motion has, due in large part to the disappearance of Plaintiffs’ former attorney, been pending for nearly four months. Further, significant discovery has already been conducted, the merits of the legal issues involved are determinable and Defendants have incurred substantial expense both in defending the merits of the case and in simply attempting to keep this case moving along toward resolution. Finally, while it is indeed unfortunate that Plaintiffs appear to have gotten a raw deal from their former attorney, they have known since May 2001 that that attorney would no longer be representing them but did not retain new counsel or seek to dismiss their action until now. Accordingly, because Defendants would suffer substantial prejudice as a result of voluntary dismissal without prejudice and because the merits of the instant motion can be readily reached, Plaintiffs motion for voluntary dismissal pursuant to Fed.R.Civ.P. 41(a)(2) shall be denied.

 

VI.

 

For the reasons set forth above, Defendants’ Motion for Summary Judgment will be granted and Plaintiffs’ Motion to Voluntarily Dismiss will be denied. The Court will enter an appropriate order.

[1] It should be further noted that there are some vague allusions in Plaintiffs’ papers to the requirements of § 3604(f)(3)(A), which require that a landlord permit a tenant to modify the existing premises so as to make them handicapped accessible where such modifications would help the handicapped tenant attain “full enjoyment” of the premises. However, such modifications need only be permitted “at the expense of the handicapped person” and, as Defendants point out, there is no evidence that Plaintiffs ever offered to pay for the modifications to the restrooms and the facility entrance.

[2] Plaintiffs rely heavily on a statement made by Carol Ramchandani to the effect that the other unit owners should “shun the people that create the disturbance.” While Plaintiffs contend that this statement was targeted at Plaintiffs, the overwhelming evidence suggests that it instead referred to problems caused by another unit owner who had allegedly threatened Defendants with violence in response to the handling of the community room issue. Thus, even viewing the facts and inferences in a light most favorable to the non-moving party, Pollock v. American Tel. & Tel. Long Lines, 794 F.2d 860, 864 (3d Cir. 1986), the Court determines that no reasonable finder of fact could, after considering Ramchandani’s statements in their proper context, draw the inferences that Plaintiffs suggest.

[3] Plaintiffs also point to Leonard Sporn’s testimony that he believed that the installation of a new front door at the Condominium was delayed because of the filing of his complaints. However, the evidence offered (which consists of a statement made to Sporn by a city inspector based on a conversation between the inspector and the contractor charged with the installation of the new door) is insufficient to permit an inference of a retaliatory motive for this alleged foot-dragging.

[4] Relevant to the Court’s interpretation of this provision is that N.J.S.A. 10:5-12 was amended in 1992 to add reference to coercion, intimidation, threats and interference and that this additional language is identical to that incorporated into the Fair Housing Act. Therefore, given that New Jersey courts have often looked to federal standards in interpreting the LAD, see, e.g., Grigoletti v. Ortho Pharmaceutical Corp., 118 N.J. 89, 97, 570 A.2d 903 (1990) (“The substantive and procedural standards that we have developed under the State’s LAD have been markedly influenced by the federal experience.”), the Court considers those cases interpreting the provisions of § 3617 of the FHA discussed above instructive in determining the proper scope of the LAD’s anti-retaliation provision.

CORONADO CAYS HOMEOWNERS ASSOCIATION, Plaintiff and Respondent, v. CITY OF CORONADO, Defendant and Appellant.

CORONADO CAYS HOMEOWNERS ASSOCIATION, Plaintiff and Respondent,
v.
CITY OF CORONADO, Defendant and Appellant.

193 Cal.App.4th 602 (2011)
123 Cal.Rptr.3d 90

Court of Appeal of California, Fourth District, Division One.
February 28, 2011.

604*604 McDougal, Love, Eckis, Boehmer & Foley, Steven E. Boehmer, David M. Stotland and Randall R. Sjoblom for Defendant and Appellant.

Epsten Grinnell & Howell, Rian W. Jones, Vincent J. Sincek and Carrie M. Timko for Plaintiff and Respondent.

605*605 OPINION

McCONNELL, P. J. —

City of Coronado (the City) appeals a judgment in which the court determined the City, rather than Coronado Cays Homeowners Association (the Association),[1] is responsible for maintaining a berm that laterally supports bulkheads located on property within the Coronado Cays subdivision. The bulkheads are adjacent to and act as a retaining wall for a waterway that belongs to the City, over which the Association has an easement. The City contends the court erred by granting the Association declaratory relief as there was no actual controversy between the parties; misinterpreting the operative documents, a special use permit and an assessor’s parcel map; and not including in the judgment certain information included in the statement of decision. We find all contentions lack merit and affirm the judgment.

FACTUAL AND PROCEDURAL HISTORY

In 1967 the City sold property to Atlantic Richfield Company and Cedric Sanders (together the developer) for the development of a “marina type residential planned community … development” called Coronado Cays. The contract required the developer to obtain a special use permit (SUP).

Under the 1968 SUP, the developer installed concrete bulkheads along “Lot 90” of the development to act as a retainer for a 200-foot-wide waterway to be dredged on the adjacent “Lot C.” The bulkheads, which are connected by tongue-and-groove construction, consist of concrete sheet piles that were “jetted” into place in native soil. Lot C was then dredged into a trapezoidal waterway, leaving a slope, called a “berm,” to provide passive lateral support for the toes of the bulkheads. The tops of the bulkheads are “restrained by a tie-back” system that “goes underneath the residence[s], about 25 feet back.”

Under the SUP, the developer dedicated Lot C to the City for public recreational use, reserving a 55-foot-wide easement for docks and related structures for the private use of Coronado Cays residents. The reserved area of Lot C is referred to as “Lot 90-A and 90-B.”

The Association eventually succeeded to the developer’s or its assignee’s interest in the project. It is agreed that the Association must maintain the bulkheads and the City must maintain the waterway. In around 1985, 606*606 however, a question arose as to whether the City or the Association is responsible for maintaining the berm in which the bulkheads are imbedded.

In 1986, a bulkhead elsewhere in Coronado Cays failed because of erosion of the supporting berm. In response, the City passed a resolution to implement a periodic inspection program and to perform required maintenance. Between 1974 and 2006, the City had surveys conducted of the condition of the berm at issue in this litigation.

In February 2008 the Association brought this declaratory relief action against the City. In March 2008 it filed a first amended complaint. The Association sought a judicial determination the City is required to maintain the berm since it is located in the waterway.

At trial, the Association cited section S.W.—109.2 of the SUP, which provides in relevant part: “The [C]ity shall accept interior waterways as fee lands for dedication and maintenance, including maintenance of the easement and right-of-way areas reserved by the developer. Maintenance shall include any redredging necessary in the future to maintain original dredged depths.”[2]

The City denied any responsibility, arguing the following language from Map No. 6181 pertaining to dedications and reservations trumped section S.W.—109.2 of the SUP: “We also accept on behalf of the public all of lot C …, not including bulkheads, for use as public and navigable waterways … reserving however unto Coronado Cay Company, … the following severable and assignable easements and rights of way;… as to Lot 90-A and 90-B, easements and rights of way in, over, across, upon and through all of said Lots for the purpose of locating, constructing and maintaining, using and operating thereon, free of any rental charged by the City …, docks, wharfs, slips, ramps, rafts, beaches, navigational aids, piers, floats, landings, decks …, footings, pilings and ancillary structures for bulkheads and similar or related wharfage facilities.” (Italics added, some 607*607 capitalization omitted.) The City argued the berm falls within the definition of “ancillary structures” the Association must maintain.

Evidence was presented that the mud line of the berm had dropped at a rate of about one foot per 10 years. Material eroding from the berm reduced the slope and raised the depth of the waterway, and the City had not maintained the waterway at its originally dredged depth. The Association argued the City should redredge the waterway to its original depth “and put[] the tailings back up where they came from,” meaning on the top of the sloped berm. There was also testimony that the berm is currently stable and the bulkheads are not in jeopardy of failing.

In a statement of decision, the court concluded the City is responsible for maintaining the berm. The court relied on section S.W.—109.2 of the SUP, and rejected the argument the berm is an “ancillary structure” under Map No. 6181. Judgment was entered on December 3, 2009.

DISCUSSION

I

Propriety of Declaratory Relief

Preliminarily, we dispose of the City’s contention the court erred by granting declaratory relief because the evidence showed the berm is currently stable and needs no maintenance, and thus there was no actual controversy between the parties.

Declaratory relief is available “in cases of actual controversy relating to the legal rights and duties of the respective parties.” (Code Civ. Proc., § 1060.) “`Whether a claim presents an “actual controversy” within the meaning of Code of Civil Procedure section 1060 is a question of law that we review de novo.’ [Citation.] When an actual controversy does exist, Code of Civil Procedure section 1061 gives the trial court discretion to determine whether it is `necessary’ and `proper’ to exercise the power to provide declaratory relief. (Code Civ. Proc., § 1061.) A trial court’s decision to exercise that power is reviewed under an abuse of discretion standard of review.” (American Meat Institute v. Leeman (2009) 180 Cal.App.4th 728, 741 [102 Cal.Rptr.3d 759].) Doubts about the propriety of the court’s decision are generally resolved in favor of granting relief. (Filarsky v. Superior Court (2002) 28 Cal.4th 419, 433 [121 Cal.Rptr.2d 844, 49 P.3d 194].)

608*608 (1) “One purpose of declaratory relief is `”`to liquidate doubts with respect to uncertainties or controversies which might otherwise result in subsequent litigation.'”‘ [Citation.] `”`One test of the right to institute proceedings for declaratory judgment is the necessity of present adjudication as a guide for plaintiff’s future conduct… to preserve his legal rights.'”‘” (American Meat Institute v. Leeman, supra, 180 Cal.App.4th at pp. 741-742.) “`The “actual controversy” referred to in [Code of Civil Procedure section 1060] is one which admits of definitive and conclusive relief by judgment within the field of judicial administration, as distinguished from an advisory opinion upon a particular or hypothetical state of facts. The judgment must decree, not suggest, what the parties may or may not do.'” (Id. at p. 741.)

(2) We conclude the dispute as to whether the Association or the City is responsible for maintaining the berm presented an “actual controversy” within the meaning of Code of Civil Procedure section 1060. While the berm does not currently need maintenance, the party with the maintenance responsibility will be required to monitor the situation. It was in the parties’ interest for the Association to take action now to determine the matter, as without the court’s guidance the parties’ roles would be unclear. The judgment is based on documents controlling the parties’ relationship; it is not merely an advisory opinion based on hypothetical facts. Further, the court properly exercised its discretion by not declining to entertain the declaratory relief claim under Code of Civil Procedure section 1061.

(3) Contrary to the City’s position, the Association was not required to show a declaration of the parties’ rights would altogether avoid future litigation. In Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647 [88 Cal.Rptr.3d 859, 200 P.3d 295], the court explained that one purpose of declaratory relief is the avoidance of future litigation. Further, the court’s ruling here may actually avoid future litigation. The court expressly rejected the City’s “argument regarding its concern over a multiplicity of lawsuits.”

II

Merits of Ruling

A

(4) “California courts have long recognized that the interpretation of a written instrument is a judicial function unless the interpretation turns upon the credibility of extrinsic evidence….” (The Lundin/Weber Co. v. Brea Oil Co., Inc. (2004) 117 Cal.App.4th 427, 433 [11 Cal.Rptr.3d 768].) The parties 609*609 presented no extrinsic evidence on the meaning of section S.W.—109.2 of the SUP. It unambiguously provides: “The [C]ity shall accept interior waterways as fee lands for dedication and maintenance, including maintenance of the easement and right-of-way areas reserved by the developer. Maintenance shall include any redredging necessary in the future to maintain original dredged depths.” As a matter of law, this provision requires the City to maintain the berm, as it is located within the waterway dedicated to the City (Lot C) and within the portion of Lot C reserved by the developer (Lot 90-A and 90-B).

(5) The City cites the general rule that an easement owner is presumed to be responsible for its maintenance. The City relies on Rose v. Peters (1943) 59 Cal.App.2d 833, 835 [139 P.2d 983], which explains, “it [is] settled that ordinarily the owner of an easement is required to keep it in repair, but it is a monotonous truism that the parties may alter their legal obligations by contract.” Here, however, section S.W.—109.2 of the SUP rebuts any arguable presumption the developer or its successor assumed the responsibility for maintaining the berm.

B

The City’s argument is primarily based on language in Map No. 6181 pertaining to the developer’s responsibility to maintain in the reserved easement, Lot 90-A and 90-B, such things as docks, ramps, decks, landings and “ancillary structures for bulkheads and similar or related wharfage facilities.” The City asserts the term “ancillary structures” is ambiguous and the court erred by not construing it in favor of the City to include the berm.

(6) “[P]arol evidence is properly admitted to construe a written instrument when its language is ambiguous. The test of whether parol evidence is admissible to construe an ambiguity is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is `reasonably susceptible.'” (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165 [6 Cal.Rptr.2d 554].) “The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties’ intentions to determine `ambiguity,’ i.e., whether the language is `reasonably susceptible’ to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is `reasonably susceptible’ to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the [document].” (Ibid.)

Based on the extrinsic evidence presented, the court found Map No. 6181 is not reasonably susceptible of the interpretation that the berm is an 610*610 “ancillary structure” whose maintenance was relegated to the developer.[3] The court explained: “The berm was not added and was not constructed. The berm existed before the bulkheads. The berm consists of native soil that was graded. This was probably of some significance in the terms of what was in the minds of the drafters of the [SUP] and the dedication and acceptance language in Map [No.] 6181.” The court also noted the term “berm” is not used anywhere in Map No. 6181.

The threshold determination on the question of ambiguity is a question of law we review independently. (Winet v. Price, supra, 4 Cal.App.4th at p. 1165.) We agree with the court’s assessment. Contrary to the City’s position, Map No. 6181 is not ambiguous merely because it does not define the term “ancillary structures.” (Aerojet-General Corp. v. Commercial Union Ins. Co. (2007) 155 Cal.App.4th 132, 140 [65 Cal.Rptr.3d 803].) The adjective “ancillary” modifies the noun “structures,” and thus if the berm is not a structure it cannot be an ancillary structure. The term “structure” commonly means “something (as a building) that is constructed.” (Merriam-Webster’s Collegiate Dict. (11th ed. 2006) p. 1238.) The court found the berm is “not a structure.” The berm consists of native soil into which the bulkheads were imbedded before the waterway was dredged. While the berm is situated against the bulkheads and passively holds them in place, it is not a structure within the common meaning of the term.

Alternatively, the City asserts the berm meets the SUP’s definition of the term “structure” as “[a]nything constructed or erected, the use of which requires more or less permanent location on the ground or attachment to the ground or attachment to something having a fixed location on the ground.” To any extent this definition applies to Map No. 6181, we are unpersuaded. Rather than being located on or attached to the ground, the berm itself was the ground when the bulkheads were constructed. We conclude Map No. 6181 is unavailing to the City.

We also agree with the court’s finding the term “bulkheads” in the phrase “ancillary structures for bulkheads and similar or related wharfage facilities” cannot reasonably be interpreted to mean the bulkheads that are located on Lot 90. The court’s statement of decision explains: “If the map language was given to someone who did not know what the context was, the reading of the plain English would say that the ancillary structures refer to bulkheads related to wharfage, and not related to the berm or the bulkheads, which are the subject of this dispute.” In the City’s interpretation, the words “and similar or related wharfage facilities” are ignored. Map No. 6181 states the City accepted “all of Lot C …, not including bulkheads, for use as public and 611*611 navigable waterways,” and since the bulkheads in question are on Lot 90 rather than Lot C, the map must be referring to any bulkheads and ancillary structures that could be constructed in the developer’s reserved area of the waterway (on Lot 90-A and 90-B) for wharfage purposes.

(7) The City argues the court was required to construe the language in Map No. 6181 in its favor under Civil Code section 1069, which provides: “A grant is to be interpreted in favor of the grantee, except that a reservation in any grant, and every grant by a public officer or body, as such, to a private party, is to be interpreted in favor of the grantor.” The statute’s directive, however, applies only if there is an ambiguity in the grant or reservation. (Red Mountain, LLC v. Fallbrook Public Utility Dist. (2006) 143 Cal.App.4th 333, 344 [48 Cal.Rptr.3d 875].) We have affirmed the court’s ruling that the map language is not reasonably susceptible of the interpretation the City urges. Civil Code section 1069 does not stand for the proposition that unambiguous grant or reservation language must be construed in a municipality’s favor. When no ambiguity exists, no construction is required.

III

Judgment Language

The City also requests that we modify the judgment to conform to the statement of decision. The judgment provides: “The … City … has the responsibility for maintaining the berm located on lot C of Coronado Cays Two, as shown on Map No. 6181, … and the … Association is to maintain the bulkheads located adjacent thereto on Lot 90 of … Coronado Cays Two.” The City complains that the judgment does not include the following paragraph included in the statement of decision: “The Court’s ruling is limited to the determination of the responsibilities of the respective parties as to the maintenance of the berm on Lot C. While there was uncontradicted expert testimony that the berms have stabilized and are not in risk of failure, the Court makes no finding about what if any maintenance needs to be done now. Also, the Court makes no determination whether this ruling is limited to the [SUP] and thus makes no ruling about what happens in 2016 when the [SUP] expires.”

(8) The City forfeited the issue by approving the judgment as to form. In any event, the judgment is proper because it sets forth the declaratory relief the court gave. A judgment should not include issues not decided. “That only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto.” (Code Civ. Proc., § 1911.)

612*612 DISPOSITION

The judgment is affirmed. The Association is entitled to costs on appeal.

Nares, J., and Irion, J., concurred.

[1] The Association was originally named Coronado Cay Homeowners Association; the name was changed to Coronado Cays Homeowners Association.

[2] The record indicates that in 2001 the City, at the Association’s request, adopted a specific plan for Coronado Cays to supplant the SUP, with the exception of section S.W.—109.2. The City also adopted a resolution to amend S.W.—109.2 of the SUP to define the term “waterway” as a “navigable body of water from the face of the bulkhead to the face of any other bulkhead.” The amended version also requires the City to maintain the waterway including “any re-dredging necessary in the future to maintain original dredged depths.” At trial, the court questioned whether the City could unilaterally amend section S.W.—109.2 of the SUP, and the City conceded that the operative documents were the original section S.W.—109.2 of the SUP and the assessor’s parcel map (Map No. 6181). Our holding would be the same under either the original or amended version of the provision.

[3] The court’s statement of decision states: “The map language can be read the way the City reads it, but the City’s interpretation is not reasonable and is contradicted by other facts.”

PV LITTLE ITALY, LLC, Cross-complainant and Appellant, v. METROWORK CONDOMINIUM ASSOCIATION et al., Cross-defendants and Respondents.

PV LITTLE ITALY, LLC, Cross-complainant and Appellant,
v.
METROWORK CONDOMINIUM ASSOCIATION et al., Cross-defendants and Respondents.

210 Cal.App.4th 132 (2012)
148 Cal.Rptr.3d 168

 

Court of Appeals of California, Fourth District, Division One.

September 26, 2012.
134*134 Vantage Law Group and Michael H. Riney for Cross-complainant and Appellant.

Epsten Grinnel & Howell, Joyce J. Kapsal, Rian W. Jones and Lori F. Chotiner for Cross-defendant and Respondent MetroWork Condominium Association.

English & Gloven, Donald A. English, Christy I. Yee and Rebecca A. Kurtz for Cross-defendants and Respondents India Street Venture and Howard Berkson.

OPINION
AARON, J. —

I.
INTRODUCTION
This appeal is from an order of the trial court resolving a dispute between PV Little Italy, LLC (PV Little Italy), and India Street Venture, LLC (India 135*135 Street), over their respective rights in a mixed office and retail condominium development in downtown San Diego, known as MetroWork. India Street was the original owner and developer of MetroWork, the centerpiece of which is the retail space that ultimately became the live music and dining venue called “Anthology.” For India Street, Anthology was the most important feature of the development, and was the focal point of India Street’s efforts in bringing the MetroWork project to fruition. To protect its investment, and in particular, its interest in the retail space, India Street drafted a Declaration of Covenants, Conditions and Restrictions (CC&R’s) that grants to the “Declarant” (defined as, initially, India Street) certain rights to control the development and management of the property. Among those rights is a special membership in the MetroWork Condominium Association (Association) that entitles the Declarant to exercise enhanced “Class B” voting rights with respect to any units it owns. Those enhanced voting rights are at the center of the parties’ dispute.

To finance MetroWork, India Street obtained a $21.5 million construction loan from KeyBank, N.A. (KeyBank). In connection with that loan, India Street entered into a Construction Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (Trust Deed) with KeyBank, pursuant to which it conveyed to KeyBank a security interest in the entire MetroWork project. The Trust Deed explicitly covered not only the real and personal property, but also India Street’s rights as Declarant under the CC&R’s, including the Class B voting rights.

As construction neared completion, India Street was able to repay a portion of the loan, with the assistance of another loan provided by Pacific Western Bank (Pacific Western). In exchange for India Street’s satisfaction of a portion of its debt, KeyBank executed a Substitution of Trustee and Deed of Partial Reconveyance (Reconveyance Deed), releasing to India Street KeyBank’s security interest in the retail units of MetroWork, which housed Anthology. By its terms, however, the Reconveyance Deed covered only the retail units themselves and the common areas and personal property associated with those units. Unlike the original Trust Deed, the Reconveyance Deed did not mention the Declarant’s rights associated with the retail units.

When India Street defaulted on the balance of the KeyBank loan, the trustee under the Trust Deed conveyed the remaining 16 unsold condominium units in MetroWork to Oreo Corp. (Oreo), an entity related to KeyBank, in a foreclosure sale. KeyBank specifically conveyed to Oreo any and all interest that it had in the Declarant’s rights. Oreo subsequently conveyed the remaining condominium units to PV Little Italy. At the same time, Oreo assigned to PV Little Italy all of the Declarant’s rights, “if any,” that Oreo possessed at that time, “without representation or warranty of any kind as to the existence of same.”

136*136 After acquiring the property and rights in MetroWork, PV Little Italy informed the Association by letter that it was now the Declarant, and as such, held the right to exercise Class B voting rights. In its letter, PV Little Italy nominated its own slate of candidates for election to the Association’s board at the upcoming annual meeting. India Street also claimed to hold Declarant’s rights by virtue of the reconveyance from KeyBank, and in particular, maintained that it possessed the Class B voting rights as to the retail units. The Inspectors of Election, LLC (Inspectors), determined that in view of the dispute as to which entity held the Class B voting rights, neither party would be permitted to exercise the enhanced Class B voting rights in the upcoming election. Instead, both would have to vote as regular “Class A” members. In the election, two of PV Little Italy’s representatives were elected to the board, and India Street’s representative lost his position as president of the board.

India Street sued, in part under Corporations Code section 7616 (section 7616),[1] seeking, among other things, a judicial declaration that it holds Class B voting rights as to the retail units. PV Little Italy intervened and cross-complained, contending that India Street had lost all of its Declarant’s rights in the foreclosure, and seeking a declaration that PV Little Italy obtained those rights, including the Class B voting rights, from Oreo. After a section 7616-mandated hearing, the trial court ruled that India Street held Class B voting rights as to the retail units, by virtue of the Reconveyance Deed. The court also determined that PV Little Italy acquired no Declarant’s rights upon its purchase of the remaining office units after India Street’s default because PV Little Italy had not acquired any rights by direct assignment from India Street, and instead, was an “unaffiliated owner.” Based on these findings, the trial court voided the 2010 board election results, and directed that the former board of directors be reinstated and a new election be held. PV Little Italy appealed.

We are required in this appeal to interpret a number of different provisions in several written instruments, and how they interrelate, to determine which rights are held by whom, and in particular, which entity, if any, has the right to exercise Class B voting rights as the Declarant. Hewing closely to basic tenets that govern the interpretation of written instruments, and based on a straightforward reading of the documents before us, we conclude that India Street conveyed a security interest in all of its Declarant’s rights, including its Class B voting rights, to KeyBank in the Trust Deed, and that India Street did 137*137 not obtain release of KeyBank’s interest in any of those rights upon the partial reconveyance. Additionally, each of the conveyances after India Street’s default included all of the grantor’s right, title and interest in MetroWork, including the Declarant’s rights, as the CC&R’s expressly authorize. PV Little Italy thus simultaneously acquired the status of Declarant as well as any Declarant’s rights that were still in existence at the time of the conveyance from Oreo to PV Little Italy, including the Class B voting rights as to the remaining unsold condominium units. PV Little Italy therefore was not an “unaffiliated owner” within the meaning of the CC&R’s.

Accordingly, we reverse the trial court’s order in its entirety.

II.
FACTUAL AND PROCEDURAL BACKGROUND
A. The MetroWork CC&R’s and India Street’s rights thereunder
MetroWork is a commercial common interest condominium development located in downtown San Diego. India Street purchased the property on which MetroWork was built in 1998, and was the original developer of that property. Berkson Realty, LLC (Berkson Realty), is the managing member of India Street, and Howard Berkson (Berkson) is the managing member of Berkson Realty. The nine-story MetroWork building consists of retail and office condominiums. The first and second floors currently house Anthology — a dining and live music venue (the Retail Units).[2]

For India Street, the Anthology space represented the “crown jewel” of this development. To protect its planned substantial investment in the Retail Units, and to address the interrelationship between the Retail Units and the office units in the project, India Street drafted the CC&R’s in 2005 for the Association, a nonprofit corporation formed pursuant to California’s Nonprofit Mutual Benefit Corporation Law. (§ 7110 et seq.) The Association adopted an amended and restated version of the CC&R’s in 2007.

Under the CC&R’s, the “Declarant” has a special status. The CC&R’s define “Declarant” in full, as follows: “`Declarant’ shall initially mean India Street Venture, LLC …, its successors, and any person to which it shall have assigned its rights hereunder, in whole or in part, by an express written assignment.” As the Declarant, India Street retained ownership of the Retail 138*138 Units. It also initially reserved ownership of units on the ninth floor for uses related to Anthology’s operations. In its capacity as Declarant, India Street was granted certain rights to control the development and management of MetroWork, until such time as all of the units in the project were sold. For example, India Street had the right to appoint and remove members of the Development Committee, which oversaw the plans, specifications and construction progress of MetroWork, until such time as all of the units were sold. (CC&R’s, §4.01.) It also reserved for itself certain rights of easement and entry which passed upon the last close of escrow for the sale of a unit from Declarant. (CC&R’s, § 6.01.) Finally, it possessed the right to develop the property only for as “long as any Condominium in the Project remains unsold.” (CC&R’s, § 7.01.) India Street acknowledged in the trial court that pursuant to the scheme created by the CC&R’s, once all of the units in the building were sold, the Declarant’s rights and privileges in the property would cease to exist, at least as to all units not owned by the Declarant (and it was anticipated that India Street or a related entity would continue to own the Retail Units).

Section 1.28 of the CC&R’s defines an “[o]wner” of a unit as: “[T]he record Owner, whether one or more persons or entities, of a fee simple interest in a Condominium, including Declarant with respect to each Condominium owned by Declarant, and including sellers under executory contracts of sale, but excluding those persons holding title as security for the performance of an obligation.” Every unit owner automatically becomes a member of the Association, and remains a member until its ownership ceases. Additionally, the CC&R’s specify that “[a]ll memberships shall be appurtenant to the Condominium conveyed.” “There shall be no severance by sale, conveyance, encumbrance or hypothecation of an interest in any Unit from the concomitant membership in the Association,” as long as the CC&R’s remain in effect.

The CC&R’s divide membership in the Association into different classes, the first two of which are relevant to this appeal. Class A members include “all Owners,” each of whom “shall be entitled to one (1) vote for each 1,000 Square Feet of floor area in such Owner’s Unit, rounded to the nearest thousand.” Most significantly for present purposes, the CC&R’s provide for a special Association membership with enhanced voting rights for the Declarant. Specifically, the CC&R’s state: “The Class B member shall be Declarant,” who is entitled to “ten (10) votes for each 1,000 Square Feet of floor area in any Units owned by Declarant.” The Declarant’s Class B membership would terminate “upon the date the Declarant no longer owns any Units in the Property.” Additionally, the CC&R’s provided that “[u]pon the sale of a Unit owned by Declarant to an unaffiliated third party, the Class B membership for that Unit shall be converted to a Class A Membership.”

139*139 B. The KeyBank loan and India Street’s default
Construction began on the MetroWork site in 2005. During the early phases of the project, Berkson negotiated with KeyBank to provide a construction loan to fund the project. India Street provided KeyBank a copy of the CC&R’s and the Association’s bylaws. The parties finalized the loan in January 2006. KeyBank promptly recorded the Trust Deed, as well as a “UCC Financing Statement” detailing the personal property that was part of the collateral for the loan. As security for the $21.5 million loan, India Street made the following conveyance, in pertinent part, to KeyBank as beneficiary under the Trust Deed:

“1.1 Grant. For the purpose of securing payment and performance of the Secured Obligations defined [in the deed of trust], [India Street] hereby irrevocably and unconditionally grants, bargains, sells, conveys, mortgages and warrants to Trustee, in trust for the benefit of Beneficiary, with power of sale and with right of entry and possession, all estate, right, title and interest which Trustor now has or may later acquire in and to the following property (all or any part of such property, or any interest in all or any part of it, as the context may require, the `Property’):
“(a) The real property … (the `Premises’); together with
“(b) All buildings, structures and improvements now located or later to be constructed on the Premises (the `Improvements’); together with … [¶] … [¶]
“(g) All of Trustor’s rights, title, interest and privileges whatsoever, as `Developer’; `Declarant’; `Subdivider’ or similar position or title pursuant to any `condominium declaration,’ `declaration of covenants, conditions and restrictions,’ or similar document recorded in the Official Records of the County in which the Premises is located….”
The construction loan set forth the circumstances under which India Street could obtain a partial reconveyance “releasing from the lien of the Deed of Trust the applicable Condominium Units,” defined elsewhere in the loan as a “commercial condominium unit or units and all common areas associated therewith.” The loan specified as follows: “Releases of Condominium Units shall not affect or impair the lien of [Trust Deed] and Lender’s lien and security interests created by the other Loan Documents as to Condominium Units and other property encumbered by the [Trust Deed] and the other Loan Documents not previously released, and said liens and security interests shall continue in full force and effect as to the unreleased Condominium Units and other such property.”

140*140 Construction of the MetroWork project was completed by June 15, 2007, when the notice of completion was recorded. The CC&R’s were recorded on July 3, 2007. India Street had closed escrow on approximately half of the office condominium units by the end of 2008. As the development neared completion, India Street began to take steps to obtain release of the Retail Units from KeyBank’s security interest. To that end, India Street negotiated the “Third Modification Agreement” with KeyBank, dated September 1, 2007, which extended the maturity date of the loan upon satisfaction of several conditions, including various payments for the release of the Retail Units, and India Street’s securing a Small Business Administration (SBA) loan in connection with the release of those units from the lien of the Trust Deed. India Street successfully obtained that SBA loan from Pacific Western. To perfect its new security interest in the Retail Units, Pacific Western recorded two deeds of trust and a UCC Financing Statement in October 2007, none of which explicitly mentions the Declarant’s rights, but all of which purport to cover, effectively, all of India Street’s “right, title and interest” in the Retail Units, including its “development rights.”[3]

India Street successfully obtained release of the Retail Units from KeyBank’s security interest in December 2007, and the Reconveyance Deed was recorded in February 2008. That document substituted KeyBank as the trustee under the Trust Deed, and reconveyed “WITHOUT WARRANTY TO THE PERSONS LEGALLY ENTITLED THERETO A PORTION OF the estate” held by KeyBank, namely, “Units U-100 and U-200” (the Retail Units), together with the common area use rights associated with those units. There is no mention of Declarant’s rights or voting rights in that document. An amended UCC Financing Statement was also recorded at that time, and it, too, contained no mention of the Declarant’s rights.

As of January 2008, India Street had defaulted on the balance of its loan from KeyBank. Negotiations for a forbearance agreement were unsuccessful, and KeyBank ultimately directed the trustee to foreclose on the Trust Deed as to the remaining unsold units in the MetroWork project. At the foreclosure sale in March 2009, the trustee conveyed to Oreo, an affiliate of KeyBank, “all of its right, title and interest in and to” the 16 remaining office units and related common areas, “[t]ogether with all of the property set forth on” the attached exhibit C, which included a description of the Declarant’s rights. Oreo conveyed the foreclosed units to PV Little Italy on November 9, 2009. On that same day, Oreo recorded an assignment and assumption of Declarant’s rights (the PVLI Assignment Agreement), by which Oreo conveyed to PV Little Italy, and the latter assumed, Oreo’s “right, title, and interest, if any, as the Declarant under the [CC&R’s] and all other documents, agreements and materials creating or governing the [MetroWork project], effective 141*141 from and after the date hereof, but without representation or warranty of any kind as to the existence of same.” The grant deed to PV Little Italy and the PVLI Assignment Agreement were both recorded on November 13, 2009.[4]

C. The voting rights dispute and ensuing litigation
At the annual Association meeting scheduled for July 7, 2009, the Association’s board of directors agreed to postpone the election of directors to January 2010, in order to coordinate with the Association’s budgeting activities. By letter dated November 23, 2009, PV Little Italy informed the Association that it had obtained the Declarant’s rights under the CC&R’s for the MetroWork project, and that India Street’s interest in those rights had been extinguished by the foreclosure sale. PV Little Italy announced its intention to seek the removal of the entire existing board of directors for the Association and to nominate a new slate of directors at the January meeting. On January 27, 2010, the Association informed its members that Inspectors had been retained to conduct the recall election and that there was “currently a dispute between two (2) owners … as to who is the Declarant of the [Association] project and therefore [sic] Class B voting rights.” The Association also notified members that Inspectors had determined that this dispute would have to be settled by arbitration or in the courts, and that to fulfill its statutory obligations, it would conduct the recall election on March 1, 2010, with “all members being considered as Class A members with the voting power” attendant to that class. The March election, at which neither PV Little Italy nor India Street was permitted to exercise the Class B voting rights, resulted in the election of two of PV Little Italy’s representatives, and the removal of Berkson as president of the Association’s board. Berkson remained a director.

India Street filed its initial complaint in February 2010, and unsuccessfully sought a temporary restraining order to block the March recall election. On April 8, 2010, it filed its verified first amended complaint alleging five causes of action and requesting various forms of relief, including, under section 7616, a determination that India Street retained the Declarant’s voting rights under the CC&R’s. PV Little Italy intervened and promptly filed a cross-complaint, in which it also sought relief under section 7616.

142*142 The trial court held the statutory section 7616 hearing on May 7, 2010. (See § 7616, subd. (c).) On May 18, 2010, the court issued a minute order in which it concluded that India Street “retained its `Declarant’ class B voting rights, and conversely cross-complainant [(PV Little Italy)] never obtained such rights.” With respect to the Retail Units, the essence of the trial court’s ruling was that the Class B voting rights were an inherent component of ownership of those units. The trial court concluded that despite the fact that the Reconveyance Deed did not mention the Class B voting rights, those rights were “within the penumbra of assets that were conveyed back to” India Street once KeyBank’s security interest in those units was terminated. The court thus concluded that Oreo obtained no such rights upon the foreclosure, and therefore, could have conveyed no such rights to PV Little Italy. Specifically, with respect to the office units on which India Street had defaulted, the trial court found that Oreo had obtained those units through a nonjudicial foreclosure sale and had subsequently sold them to PV Little Italy. The court concluded that because “PV Little Italy did not acquire its ownership rights via direct assignment” from India Street, pursuant to the CC&R’s, PV Little Italy was an “unaffiliated owner” with no Class B voting rights. (See CC&R’s, § 1.15, 2.05, subd. (b).) Consistent with this ruling, the trial court invalidated the March 1, 2010 election, ordered that a new election be held within 60 days, and reinstated the officers and board that existed prior to the March 1, 2010 election.

III.
DISCUSSION
A. The trial court’s order is appealable as an injunction
We first consider whether the trial court’s May 18, 2010 order — which on its face is not a “judgment” and did not purport to resolve all issues between the parties — is appealable. At our direction, the parties submitted supplemental briefing on this issue. We conclude that the order is appealable under Code of Civil Procedure section 904.1, subdivision (a)(6), in that it granted injunctive relief.

(1) “A trial court’s order is appealable when it is made so by statute.” (Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 696 [107 Cal.Rptr.2d 149, 23 P.3d 43] (Griset).) The “one final judgment” rule, codified in Code of Civil Procedure section 904.1, subdivision (a)(6) allows appeals in a civil case to be taken not only from a “judgment,” but also from various types of orders, including orders granting or refusing to grant an injunction. Whether a particular order constitutes an appealable injunction depends not on its title or the form of the order, but on “`the substance and 143*143 effect of the adjudication.'” (In re The Clergy Cases I (2010) 188 Cal.App.4th 1224, 1234 [116 Cal.Rptr.3d 360] (Clergy Cases I).) An injunction is defined as “a writ or order requiring a person to refrain from a particular act.” (Code Civ. Proc., § 525.) Injunctions also may command a person to perform a particular act. (Luckett v. Panos (2008) 161 Cal.App.4th 77, 84 [73 Cal.Rptr.3d 745] (Luckett).)

In its May 18, 2010 order, after finding that India Street retained the Class B voting rights and that PV Little Italy had never acquired those rights, the trial court ruled that the March 2010 election was void, and entered the following order: “[A] new election must be forthcoming within 60 days of the date of this order. The officers and board for the MetroWork Condominium Association that existed immediately prior to the March 1, 2010 election will immediately retake interim control of the Association pending the new election.” The plain language of this order constitutes a mandatory injunction, since it required the immediate turnover of control of the Association to the prior board and officers, and the holding of a new election. India Street disingenuously argues that the order is not appealable as an injunction because it “does not expressly grant an injunction.” (Italics added.) As noted, however, it is not the form, but the substance of an order that determines its appealability.[5]

(2) Another key indicator of whether an order is final and appealable is that “`no issues in the action remain for further consideration….'” (Clergy Cases I, supra, 188 Cal.App.4th at p. 1234; see Canandaigua Wine Co., Inc. v. County of Madera (2009) 177 Cal.App.4th 298, 303 [99 Cal.Rptr.3d 264] [“[A]n order constitutes a final judgment despite other causes of action remaining if the order effectively disposes of the entire case. For example, an order is appealable if it resolves an allegation that is essential to all of the causes of action.”].) The May 18, 2010 order resolved the core conflict between the parties by determining on the merits which party possesses the Declarant’s rights, and in particular, the Class B voting rights. India Street’s complaint sought declaratory and injunctive relief, specific performance, and reformation of the CC&R’s. The gist of the action was India Street’s effort to have itself declared the party that held the right to exercise the Class B voting rights attached to the Retail Units. PV Little Italy intervened for the express 144*144 purpose of resolving whether it, and not India Street, is the Declarant and holds Class B voting rights. PV Little Italy therefore sought a judicial determination of the voting rights of the parties and the related issues of the validity of the March 2010 board election. Like India Street, PV Little Italy requested relief under section 7616 to resolve these issues.

The order appealed from accomplished that goal, and neither party has indicated that anything more of substance remains to be done in the litigation, except entry of judgment. Indeed, as India Street acknowledges, it has since voluntarily dismissed its causes of action pertaining to issues other than those raised pursuant to section 7616. (See Griset, supra, 25 Cal.4th at p. 698 [a decree generally may be considered final “where no issue is left for future consideration”]; see also Abatti v. Imperial Irrigation Dist. (2012) 205 Cal.App.4th 650, 667 [140 Cal.Rptr.3d 647] [holding that appellate jurisdiction exists even where claims have been dismissed without prejudice to enable entry of judgment, unless the parties also have stipulated to facilitating future litigation of the dismissed claims].)

For the foregoing reasons, the trial court’s May 18, 2010 order is appealable. We turn now to the merits of PV Little Italy’s appeal.[6]

B. Applicable standard of review
This appeal presents two issues. First, did the Reconveyance Deed release KeyBank’s security interest not only in the Retail Units themselves, but also in all of the Declarant’s rights, including the Class B voting rights as to Retail Units? Second, did PV Little Italy become the Declarant upon its purchase of the 16 units from Oreo, and thus gain Class B voting rights as to those units? The trial court’s determination of these questions turned primarily on the court’s review and interpretation of various written documents — in particular, the CC&R’s, the Trust Deed, and the Reconveyance Deed.

“The interpretation of a written instrument, even though it involves what might properly be called questions of fact… is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect.” (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865 [44 Cal.Rptr. 767, 402 P.2d 839], citation omitted (Parsons).) An appellate court reviews such instruments independently, “unless the interpretation turns upon the credibility of extrinsic evidence.” (Ibid.; see Harvey v. The Landing Homeowners Assn. (2008) 162 Cal.App.4th 809, 817 [76 Cal.Rptr.3d 41] (Harvey) [“Where, as 145*145 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.”].)

Although India Street submitted some extrinsic evidence to aid in the trial court’s interpretation of the relevant documents, the trial court did not rest its ruling on any of the extrinsic evidence. Moreover, while PV Little Italy attempted to impeach the credibility of India Street’s witnesses, it offered no directly conflicting extrinsic evidence of the parties’ intent or of their understanding of the documents under consideration. Instead, PV Little Italy argued that the documents speak for themselves. Because the trial court did not rely on extrinsic evidence, and because the extrinsic evidence that the parties presented was not in conflict, in this appeal “we must make an independent determination of the meaning of” the written instruments before us. (Parsons, supra, 62 Cal.2d at p. 866; see Home Federal Savings & Loan Assn. v. Ramos (1991) 229 Cal.App.3d 1609, 1613 [284 Cal.Rptr. 1] [“Here, because the parties presented little relevant and no conflicting extrinsic evidence [citation], the trial court properly refused to submit the interpretation of the written guaranty to the jury. [Citation.] Likewise, however, we as the reviewing court consider the evidence and interpret the guaranty de novo.”].)

C. The trial court erred in finding that India Street, as owner of the Retail Units, retained the Declarant’s Class B voting rights
1. The plain language of the CC&R’s, the Trust Deed, and the Reconveyance Deed, all indicate that the Class B voting rights associated with the Retail Units were not reconveyed to India Street.
(3) In determining whether the Reconveyance Deed released KeyBank’s security interest in India Street’s Declarant’s rights and the Class B voting membership, we are guided by familiar rules that govern the interpretation of written instruments. “The fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time they entered into the contract.” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1385 [137 Cal.Rptr.3d 293] (Klein).) “When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible….” (Civ. Code, § 1639; see Klein, supra, at p. 1385; see also Starlight Ridge South Homeowners Assn. v. Hunter-Bloor (2009) 177 Cal.App.4th 440, 447 [99 Cal.Rptr.3d 20] (Starlight Ridge).) (4) “`We consider the contract as a whole and construe the language in context, rather than interpret a provision in isolation.'” (Starlight Ridge, supra, at p. 447.) When the language of the instrument is unambiguous, we 146*146 determine the parties’ intent solely by reference to that language. (Ibid.; Klein, supra, 202 Cal.App.4th at p. 1385; see Civ. Code, § 1638 [“language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity”].)

We begin our analysis with the CC&R’s, the key document that defines the scope of the Declarant’s rights, the nature of Class B Association membership, the ability of the Declarant to transfer its rights, and the consequences of doing so. At the time the CC&R’s were created, India Street was the original Declarant, and as such, initially possessed Class B voting rights as to the entire MetroWork project. (See CC&R’s, § 1.15, stating “Declarant shall initially mean [India Street].”) In addition to the Class B voting rights, as Declarant, India Street also possessed a number of rights under the CC&R’s that enabled it to control management of the project during development, and to protect its investment in Anthology, including the enhanced Class B voting rights. (See CC&R’s, §§ 2.05, 4.01, 7.01-7.04, 8.02.) Importantly, India Street had the power to assign its rights under the CC&R’s to another person or entity. CC&R’s section 1.15 reads, in full: “`Declarant’ shall initially mean [India Street], its successors, and any person to which it shall have assigned its rights hereunder, in whole or in part, by an express written assignment.” (Italics added; see CC&R’s, § 7.03 [providing that Declarant’s rights “may be assigned by Declarant to any successor in interest to any portion of Declarant’s interest in any portion of the property by a recorded written assignment”].)

There is no dispute that, pursuant to CC&R’s section 1.15, India Street assigned its Declarant’s rights, including the Class B voting rights, in their entirety, to KeyBank, as security for a construction loan to finance the MetroWork project. The Trust Deed of which KeyBank is the beneficiary provided that, as security for the loan, India Street, as trustor, “hereby irrevocably and unconditionally grants, bargains, sells, conveys, mortgages and warrants to Trustee, in trust for the benefit of [KeyBank], with power of sale and with right of entry and possession, all estate, right, title and interest which [India Street] now has or may later acquire” to the MetroWork property. (Trust Deed, § 1.1.) That grant explicitly included “[a]ll of Trustor’s rights, title, interest and privileges whatsoever, as `Developer’, `Declarant’, `Subdivider’ or similar position or title pursuant to any `condominium declaration,’ `declaration of covenants, conditions and restrictions,’ or similar document recorded in the Official Records of the County in which the Premises is located….” (Trust Deed, § 1.1, subd. (g), italics added.)

The parties agree that the effect of this conveyance was to lodge with the trustee, for the benefit of KeyBank, legal title to the property transferred, but that the transfer did not alter India Street’s ability to develop and manage the 147*147 MetroWork project, or to exercise its Declarant’s rights (including Class B voting rights as to any units it owned), as long as there was no default. (See 4 Witkin, Summary of Cal. Law (10th ed. 2005) Security Transactions in Real Property, § 5, p. 795 [with a deed of trust that includes the power of sale, “title passes to the trustee, who holds it until default; then, after sale, it goes from the trustee to the purchaser”]; see also id., § 6, p. 796 [deed of trust “actually gives the trustee only the interest that is necessary to carry out the trust,” taking “legal title for security only, leaving a legal estate and the ordinary rights of ownership in the trustor”].) Thus, up to the time of its default, India Street was able to exercise all of its Declarant’s rights, including voting rights.[7]

In 2008, India Street successfully obtained release of the Retail Units from the lien of the Trust Deed. However, unlike the original deed of trust, the Reconveyance Deed made no reference to the Declarant’s rights. India Street contends that the language of the Reconveyance Deed “completely released KeyBank’s security interest in the `owner’s entire estate’ consisting of the Retail Units.” However, that is not what the document says. Rather, the Reconveyance Deed reconveyed only “A PORTION OF the estate now held by it under the Deed of Trust as specifically described on Exhibit `A’ attached hereto.” (Original capitalization, italics added.) Exhibit A describes only the Retail Units themselves, plus the associated common areas. There is no mention of the Declarant’s rights. In its brief, India Street concedes, albeit implicitly, that there is no express release of the Declarant’s rights in the Reconveyance Deed. In depositions, Berkson could recall no specific discussion about voting rights with KeyBank during negotiations over the reconveyance, and Lorne Polger (Polger), the attorney who negotiated the terms of the reconveyance on behalf of India Street, acknowledged that there had been no such discussions.

Our conclusion that there was no reconveyance of the Declarant’s rights is further buttressed by the language of the original construction loan from KeyBank, which specifically provides that a partial reconveyance “shall not affect or impair the lien of the Deed of Trust and Lender’s Lien and security interests created by the other Loan Documents as to the Condominium Units and other property encumbered by the [Trust Deed] and the other Loan 148*148 Documents not previously released, and said liens and security interests shall continue in full force and effect as to the unreleased Condominium Units and other such property.”[8] Additionally, the trustee’s deed that was recorded after the foreclosure sale evidences that the trustee conveyed to Oreo not only the remaining real and personal property of MetroWork, but also, explicitly, the Declarant’s rights. It is thus clear that KeyBank knew how to reconvey the Declarant’s rights to India Street, if that had been what the parties intended. However, no language of reconveyance or release of the Declarant’s rights, insofar as applicable to the Retail Units, appears in the Reconveyance Deed or in any other document filed in connection therewith.

The trial court acknowledged that the Reconveyance Deed contained no language releasing the Declarant’s rights, but nonetheless held that the reconveyance included the Declarant’s rights. In reaching this conclusion, the court observed that the rights (including the Class B voting rights) granted to the Declarant in the CC&R’s were designed to ensure that India Street, as original owner and operator of the project, could exercise “control over building management,” particularly with respect to the Retail Units. The court reasoned that “it is counter-intuitive to presume that these Declarant’s rights [(including the voting rights)] could be separated from the ownership interest in the retail units.” Accordingly, the court held that although the Reconveyance Deed “did not expressly list Declarant rights, they are within the penumbra of assets that were conveyed back to [India Street].” We disagree, and conclude that the trial court’s interpretation of the Reconveyance Deed is not supported by the express terms of that document, nor by any of the documents that were executed in connection with the KeyBank loan.

The trial court’s fundamental error lay in its misapprehension of the relationship between the Declarant’s Class B voting rights and ownership of the Retail Units. We agree with PV Little Italy that while membership in the Association, in general, is “appurtenant” to ownership of any unit in MetroWork, the Declarant’s enhanced voting rights do not automatically attach to ownership of the Retail Units, nor to any other unit, nor are they inseparable therefrom.

It is true, as India Street contends, that ownership of a unit automatically carries with it membership in the Association, for as long as the unit is owned. Section 2.03 of the CC&R’s states as much, and further provides that “All memberships shall be appurtenant to the Condominium conveyed….” 149*149 The CC&R’s also specify, in section 13.01, that “[t]here shall be no severance by sale, conveyance, encumbrance or hypothecation of an interest in any Unit from the concomitant membership in the Association.” However, these provisions merely illustrate that membership in the Association is solely a function of unit ownership. (See CC&R’s, § 2.03 [“Ownership of a Condominium shall be the sole qualification for membership in the Association.”].)

By contrast, Class B membership is not determined solely by being an owner, but rather, by being a particular owner — i.e., the Declarant. (CC&R’s, §§ 1.15, 2.05, subd. (b), 7.03.) In other words, the unique status and rights of the Declarant do not result from ownership of a condominium, but rather, from specific grants in the CC&R’s to the Declarant. (See, e.g., CC&R’s, art. VII, §§ 7.01, 7.02, 8.02, subd. (b).) The “Declarant” is defined in the CC&R’s not in terms of ownership of a unit, but rather, as “initially” being India Street, its successors, and assignees. (CC&R’s, § 1.15.) Importantly, the Declarant is not necessarily India Street, because the CC&R’s permit the Declarant to assign its rights to another, “in whole or in part,” to any number of assignees. (CC&R’s, § 1.15, italics added; see § 7.03 [“The rights of Declarant hereunder and elsewhere in these Restrictions may be assigned by Declarant to any successor in interest to any portion of Declarant’s interest in any portion of the property by a recorded written assignment.” (italics added)].)

Contrary to India Street’s contentions and the trial court’s conclusions, nothing in the CC&R’s binds the Retail Units irrevocably to the Declarant (whether Declarant is India Street or some other entity) or to the Declarant’s Class B voting rights. Those units are not defined as “units owned by the Declarant” or “units owned by India Street.” Rather, the “Retail Parcel” is defined in the CC&R’s only as “Those units on floors 1-2 as set forth on the Condominium Plan.” Even the so-called “Declarant Units” are not defined as “units owned by the Declarant,” or as “units owned by India Street,” but rather, merely as “those units comprising floors 1, 2 and 9 as described in the Condominium Plan.”[9] (CC&R’s, § 1.16.) India Street identifies no language in the CC&R’s stating that the first and second floors of MetroWork must always be owned by an entity deemed to be the Declarant. Absent such language, nothing in the CC&R’s prevents ownership of the Retail Units from being separated from the status of Declarant and its concomitant voting rights. Indeed, the very provision that grants the enhanced voting rights as to any unit owned by the Declarant anticipates the possibility that those rights 150*150 could be terminated upon sale of the unit to an unaffiliated entity. In that case, the special Class B membership is converted to the standard Class A membership.[10] (CC&R’s, § 2.05.)

For these reasons, the plain language of the CC&R’s belies the trial court’s conclusion that the Class B voting rights cannot be separated from the Retail Units. The combined effect of CC&R’s sections 2.03, 2.05, subd. (b), and 13.01, summarized above, is that Class B voting rights may not be separated from any units owned by the Declarant — but that merely begs the question: which entity is the Declarant? When India Street assigned a security interest in its Declarant’s rights to KeyBank, and did not obtain a release of those rights as to the Retail Units in the reconveyance, upon India Street’s default, the status of Declarant, and the concomitant enhanced voting rights, became separated from ownership of the Retail Units. By operation of the CC&R’s, India Street was no longer the Declarant; it had become just like any other owner, with Class A membership in the Retail Units.

Despite acknowledging that the Declarant’s rights had not been expressly reconveyed to India Street, the trial court reasoned that it was “counter-intuitive to presume that these Declarant’s rights could be separated from the ownership interest in the [Retail Units],” since the CC&R’s had been drafted with the intention of allowing India Street to maintain control over management of those units. The court concluded that those rights therefore must have been “within the penumbra” of assets reconveyed to India Street. We do not disagree with the trial court’s interpretation of what India Street subjectively intended in drafting the provisions in the CC&R’s pertaining to the Declarant’s rights. The record appears to substantiate India Street’s assertions that its focus, from the beginning, was to make Anthology the “crown jewel” 151*151 of MetroWork. India Street undoubtedly envisioned that only it, or a related entity or direct assignee, would be the owner of the Retail Units as Declarant. India Street structured the CC&R’s in a manner that would preserve India Street’s ability to use the Retail Units for Anthology or a similar purpose well into the future. Thus, although many of the Declarant’s powers would terminate once MetroWork was fully developed and all other units of MetroWork were sold, the Declarant’s right to use the Retail Units for a restaurant or nightclub venue was protected in perpetuity, and all other owners purchased their units subject to those uses, for as long as the Declarant owned the space. (Compare CC&R’s, § 7.01 [protecting the right of Declarant to develop MetroWork as it “deems advisable” for “so long as any Condominium in the Project remains unsold”], with § 7.02 [allowing Declarant to use the “Declarant Units” for any use allowed by law, including restaurant and club uses].) Further, pursuant to CC&R’s section 2.05 the enhanced Class B membership survives for as long as Declarant owns a unit.

That said, we are bound to interpret written instruments according to the parties’ intent as manifested in the written instrument, if that language is clear and explicit. (See, e.g., Parsons, supra, 62 Cal.2d at p. 866; Starlight Ridge, supra, 177 Cal.App.4th at p. 447.) While it may have seemed “counter-intuitive” to the trial court that KeyBank would release its security interest in the Retail Units without also releasing the Declarant’s rights associated with those units, India Street drafted the CC&R’s and negotiated the loan agreement and various deeds in a manner that did not foreclose that possibility. It is not for the trial court, or this court, to inject our own “intuition” into the analysis of the parties’ intent when the language of the instruments is clear. (See, e.g., Klein, supra, 202 Cal.App.4th at p. 1385 [the contracting parties’ intent is interpreted according to objective, rather than subjective, criteria].)

Our conclusion that the Reconveyance Deed did not release KeyBank’s security interest in the Declarant’s rights as to the Retail Units is based on the express and unambiguous language of the Reconveyance Deed itself, the CC&R’s, and other instruments. (Harvey, supra, 162 Cal.App.4th at p. 817 [“The language of the CC&R’s governs if it is clear and explicit…. The parties’ intent is to be ascertained from the writing alone if possible.”].) Notwithstanding the manifest intention of the CC&R’s to protect India Street’s investment in the Retail Units, the CC&R’s also expressly permit the Declarant to assign all or a portion of its rights. This right of assignment, together with the original Trust Deed’s express conveyance of a security interest in the Declarant’s rights to KeyBank, and the lack of any language releasing that interest in the Reconveyance Deed, all indicate, under the usual rules of interpretation, an intent to exclude the Declarant’s rights from the reconveyance. (Cf. White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 881-882, fn. 4 [221 Cal.Rptr. 509, 710 P.2d 309] [the familiar maxim, 152*152 expressio unius est exclusio alterius (the inclusion of one thing implies exclusion of others), applies to contract interpretation].)

(5) If the plain language of the instrument is unambiguous, a court may not “read into” the document additional terms in order to conform its meaning to what the court’s “intuition” tells it the parties must have intended. Rather, the court “is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted….” (Code Civ. Proc., § 1858; see Klein, supra, 202 Cal.App.4th at pp. 1385-1386.) There are, of course, instances when the parties mutually intend one thing, but due to mistake or inadvertence, the written document does not reflect that intent. In that instance, the law permits the court to reform the document consistent with the parties’ intent. (See, e.g., 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, §§ 276 [discussing reformation remedy generally], 279, pp. 306, 309 [noting that a deed may be reformed]; Civ. Code, § 3399 [permitting “revision” of contract that “does not truly express the intention of the parties”].) Although India Street initially included in its complaint a claim for reformation, it voluntarily dismissed that claim after the section 7616 hearing, and it makes no argument on appeal that the absence of an express release of the Declarant’s rights in the Reconveyance Deed was due to mistake or inadvertence.

2. The other documents and extrinsic evidence on which India Street relies are insufficient to demonstrate that KeyBank released the Declarant’s rights as to the Retail Units by means of the Reconveyance Deed.
(6) In determining the meaning of a written instrument, we are permitted to consider not only its language, but also “`the circumstances under which [it] was made and the matter to which it relates.'” (Starlight Ridge, supra, 177 Cal.App.4th at p. 447, citations omitted.) India Street urges us to look at the broader context in which the reconveyance was accomplished, and to consider other evidence indicating that the intention underlying that conveyance was to restore to India Street not only the Retail Units themselves, but all of the Declarant’s rights associated with those units. In our view, however, these other documents and the extrinsic evidence of intent that India Street proffers are unhelpful and fail to demonstrate any intent other than that revealed by the plain language of the CC&R’s and the Reconveyance Deed.

For example, India Street contends that the third modification to the original loan agreement, combined with other documents executed in anticipation of the reconveyance, released all of KeyBank’s interests in the lien on the Retail Units. By definition, this language covered only “Condominium Units 1A and 2A” themselves, and nothing else. India Street points to no language in the Third Modification Agreement that would indicate otherwise.

153*153 As an additional condition of the release of the Retail Units, India Street agreed to execute a second deed of trust that encumbered only the Retail Units, but that was otherwise identical to the original Trust Deed. This second deed was additional consideration for the Third Modification Agreement, was intended to “be subordinate only to the lien of the deed or deeds of trust securing repayment of the [Pacific Western SBA] loan,” and was to be returned to India Street upon the fulfillment of certain conditions, absent any default. In the trial court, India Street maintained that this second deed, which was never recorded, “would have been unnecessary” if the release of the Retail Units was not intended to be a complete release of all of KeyBank’s interest.

The purpose of this second deed is unclear, and in any event, India Street has not explained how the deed demonstrates that the KeyBank reconveyance released the Declarant’s rights. Nothing on the face of the second deed supports India Street’s argument. On the contrary, the second deed serves merely to reinforce that KeyBank held a security interest in the Declarant’s rights associated with the Retail Units. In our view, the absence of specific language in the Reconveyance Deed releasing that interest, notwithstanding the language of the second deed, only reaffirms that there was no release of the Declarant’s rights as to the Retail Units by KeyBank in the Reconveyance Deed.

India Street emphasized in the trial court, and does so again on appeal, the fact that before obtaining the reconveyance, it obtained a second loan on the Retail Units from Pacific Western, and in exchange for that loan, gave Pacific Western a security interest in those Units and in “any and all … rights … relating to … the development or occupancy” of the Retail Units. This presumably demonstrates, in India Street’s view, that it was India Street’s intention to regain the Declarant’s rights as to the Retail Units, unencumbered by any KeyBank interest, so that it could convey a new security interest in those rights to Pacific Western.

There are several flaws in this argument. First, regardless of what India Street may have intended in terms of a reconveyance of Declarant’s rights, as we have explained, the language of the reconveyance does not manifest that intention. Second, the Pacific Western deed makes no explicit reference to “Declarant’s rights,” which are dealt with separately in the CC&R’s, and which, in the original Trust Deed, were listed separately from other “Developer” rights that India Street may have possessed. As such, the Pacific Western deed does not demonstrate that India Street conveyed to that lender any security interest in the Declarant’s rights.

Third, even if the conveyance to Pacific Western of “all of [India Street’s] right, title, and interest in … all other rights … relating to the real 154*154 property,” including “development rights,” could be construed broadly to include the Declarant’s rights, such a conveyance would not necessarily be inconsistent with KeyBank retaining its own security interest in the Declarant’s rights, since two deeds of trust may cover the same property. (See Davidow v. Corporation of America (1936) 16 Cal.App.2d 6 [60 P.2d 132] [upholding validity of foreclosure sale on second deed of trust on property already covered by first deed of trust]; 4 Witkin, Summary of Cal. Law, supra, Security Transactions in Real Property, § 6, pp. 796-797 [noting that, because a deed of trust conveys only an interest sufficient to carry out the trust, and does not vest the trustee with the entire estate in the property, it is possible to have a second deed of trust covering the same property].) India Street can have conveyed to Pacific Western only whatever title it had, subject to the rights of KeyBank, which claimed an interest under the first deed of trust. (Davidow, supra, at p. 12.) Additionally, Pacific Western recorded its deeds of trust on October 31, 2007, before KeyBank had recorded or even executed the reconveyance (on Feb. 19, 2008, and Dec. 10, 2007, respectively). Pacific Western thus presumably took its security interest subject to KeyBank’s interest, which was prior in time. (See, e.g., Trust Deed, § 1.2, subd. (b) [providing that all persons acquiring an interest in the property “will be considered to have notice of, and will be bound by, the … Secured Obligations” created by the KeyBank loan and related documents].)[11]

India Street also references a “Subordination Agreement” pursuant to which KeyBank subordinated the lien of the Trust Deed to the CC&R’s. However, India Street fails to explain the relevance or significance of the Subordination Agreement to the issues before us. To the extent that India Street is suggesting that this agreement essentially “nullified” the conveyance of a security interest in the Declarant’s voting rights under the Trust Deed, we reject that assertion as without foundation and entirely contrary to the explicit intent to convey such an interest to KeyBank by means of that deed. To the extent that India Street is suggesting only that this language required KeyBank to allow India Street to continue to exercise rights as the Declarant, including enhanced voting rights, notwithstanding the security interest created by the Trust Deed, the subordination language adds nothing to our analysis. As noted previously, a deed of trust does not prevent the trustor — in this case, India Street — from continuing to exercise all of the ordinary rights of ownership.[12] (See discussion, ante, at pt. III.C.1.)

155*155 Contrary to the trial court’s conclusion, in our view, none of the UCC Financing Statements included in the record supports the trial court’s conclusion that the reconveyance necessarily included the Class B voting rights. PV Little Italy contends that any mention of the Declarant’s rights in these statements is surplusage, because UCC Financing Statements pertain only to personal property, and the provisions of the CC&R’s are deemed to create equitable servitudes, which are real property rights and obligations. (See Civ. Code, § 1354; CC&R’s, preamble, ¶ D.) Moreover, PV Little Italy argues, UCC Financing Statements do not, in themselves, convey security interests. Rather, they provide notice of the collateral covered by a security agreement. (Compare Cal. U. Com. Code, § 9102, subd. (a)(73) [defining “security agreement” as “an agreement that creates or provides for a security interest”] with Cal. U. Com. Code, § 9310, subd. (a) [“a Financing Statement must be filed to perfect all security interests …”].) India Street does not respond to these arguments.

In any event, the UCC Financing Statements are consistent with the plain language of the Trust Deed and the Reconveyance Deed, as we have interpreted that language. Like the Trust Deed, the original UCC Financing Statement covered all buildings, goods, rents and materials located on the MetroWork property, but also separately and explicitly mentioned “All of Debtor’s rights, title, interest and privileges, whatsoever, as `Developer,’ `Declarant,'” or other position pursuant to the CC&R’s. The amendment to that financing statement recorded at the time of the reconveyance, like the Reconveyance Deed itself, notably does not include that same language in the release of collateral. Rather, it states only: “That portion of the real property described on Attachment 1 hereto [(a description of the Retail Units)] is hereby deleted from the definitions of `Improvements,’ `Premises’ and `Condominium Units’ set forth in the initial Financing Statement and Secured Party’s interest therein is released.” The Declarant’s rights were not included either within the legal description included as attachment 1, or within the defined terms listed in the amendment. Finally, as previously noted, upon the foreclosure sale, the trustee conveyed to Oreo all of its remaining “right, title and interest” in unsold units of MetroWork, as set forth not only in the legal description of the physical property attached to the trustee’s deed of sale, but also as set forth in the initial UCC Financing Statement annexed to that deed, which explicitly mentioned the Declarant’s rights, and which was attached as an exhibit to the trustee’s deed upon sale. This evidences in plain language that the trustee still held a security interest in the Declarant’s rights at the time of foreclosure, and that it intended to include those rights in the conveyance to Oreo after the foreclosure.

156*156 India Street’s reliance on Civil Code section 1358 is misplaced. That statute provides that any “conveyance … of the owner’s entire estate also includes the owner’s membership interest in the association.” (Id., subd. (b).) We agree with PV Little Italy that because India Street did not raise this argument in the trial court, it may not properly raise it for the first time on appeal. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2011) ¶ 8.229, p. 8-155 (rev. # 1, 2011), and cases cited therein.) In any event, the argument is unavailing. As we have explained, the CC&R’s were not written in a way that makes Declarant’s enhanced voting rights appurtenant to ownership of the Retail Units. Whether a transferee of a unit obtains Class B membership of the Declarant, or instead, the same Class A membership as any other owner receives, depends solely on whether that transferee is the “Declarant.” When KeyBank released its security interest in the Retail Units without simultaneously releasing its interest in the Declarant’s rights, and India Street subsequently defaulted, India Street lost the status of Declarant and thus could no longer exercise Class B voting rights as to those units — although it could exercise Class A membership. The directive of Civil Code section 1358 is therefore observed: India Street’s ownership of the Retail Units includes membership rights in the Association, albeit not the membership that India Street had perhaps planned to possess.

(7) Because the language of the relevant instruments is clear and unambiguous, resort to extrinsic evidence of the parties’ intent is unnecessary and even inappropriate. (Parsons, supra, 62 Cal.2d at p. 865; see Civ. Code, § 1639; Code Civ. Proc., § 1856, subd. (b).) The trial court thus erred in looking to the Berkson and Polger declarations to bolster its conclusion that India Street possessed Class B voting rights as a function of its ownership of the Retail Units. However, even if the Reconveyance Deed were susceptible of more than one interpretation (and we do not believe that it is), reliance on these declarations as evidence of the parties’ intent would be improper. (See Winet v. Price (1992) 4 Cal.App.4th 1159, 1165 [6 Cal.Rptr.2d 554] (Winet) [court may consider extrinsic evidence of the parties’ intent, as long as that evidence is “relevant to prove a meaning to which the language is `reasonably susceptible.’ [Citation.]”].) The Berkson and Polger declarations merely confirm what the language of the CC&R’s already makes clear — namely, that India Street wanted to protect its “crown jewel” investment in the Retail Units. Moreover, Berkson avers only that it was his “understanding” that the release of the Retail Parcel from the lien of the deed of trust was to be a full release, and states that he would not have entered into the reconveyance “if KeyBank had expressed an intention to reserve any rights related to the Retail Parcel.” Similarly, Polger states that he “understood” that between the Reconveyance Deed and the amended UCC Financing Statement, all real and personal property collateral in the Retail Units would be released, including 157*157 any Declarant’s voting rights “to the extent that such voting rights were attached to the realty” or “were deemed a personal property interest.”

Such subjective statements of “understanding” are irrelevant, however, particularly where there is no evidence that KeyBank had the same understanding. As PV Little Italy notes, the deposition testimony of both Berkson and Polger indicates that they never discussed the Declarant’s rights with KeyBank in connection with the reconveyance. (See, e.g., Reigelsperger v. Siller (2007) 40 Cal.4th 574, 579-580 [53 Cal.Rptr.3d 887, 150 P.3d 764] [the “uncommunicated subjective intent” of one party cannot be used to contradict the objective manifestation of the parties’ intent]; Winet, supra, 4 Cal.App.4th at p. 1166, fn. 3 [evidence of the undisclosed subjective intent of the parties is irrelevant to determining the meaning of contractual language].)[13]

(8) While it is fundamental that the court should avoid interpreting a writing in a manner that results in an absurdity (see Civ. Code, § 1638 [language of instrument controls if it “does not involve an absurdity”; see also Starlight Ridge, supra, 177 Cal.App.4th at p. 447), India Street makes no argument that any interpretation other than the trial court’s would be “absurd,” and our interpretation does not lead to an absurd result. The CC&R’s were evidently drafted with the intention of giving India Street a great deal of flexibility to exercise or assign its Declarant’s rights as it saw fit, and as its business needs required, even if that meant conveying the status of Declarant to another entity. It is not unreasonable to presume, as PV Little Italy contends, that KeyBank would want to retain its security interest in the Declarant’s rights while the substantial balance of its loan to India Street remained outstanding, so that in the event of a default, it would have the greatest possible degree of control over the project’s management pending the sale of the remaining units. Polger, India Street’s attorney, acknowledged as much during his deposition.

For the foregoing reasons, we conclude that the Reconveyance Deed did not release KeyBank’s lien on the Declarant’s rights, including the enhanced voting rights associated with the Retail Units.

158*158 D. Oreo expressly conveyed to PV Little Italy any remaining Declarant’s rights that it may have possessed at the time of the sale; accordingly, PV Little Italy holds Declarant’s rights, including Class B voting rights, as to any units that it still owns
After India Street’s default, KeyBank foreclosed on the remaining 16 unsold units in the MetroWork project, and these units were promptly sold to Oreo at the trustee’s sale. The trustee’s deed upon sale conveyed all the real and personal property covered by the Trust Deed (with the exception of the Retail Units already reconveyed), and specifically identified the Declarant’s rights as among the property conveyed to Oreo. On November 13, 2009, Oreo sold these units to PV Little Italy. On that same day, Oreo entered into an assignment and assumption agreement pursuant to which it transferred to PV Little Italy its “right, title, and interest, if any, as the Declarant” under the CC&R’s, specifying that the transfer was “without representation or warranty of any kind as to the existence of same.” We now address whether, by virtue of this assignment, PV Little Italy became the Declarant and obtained the Declarant’s Class B voting rights as to the units that it purchased from Oreo. Relying once again primarily on the plain language of each of the conveyances after India Street’s default, we conclude that PV Little Italy did acquire those rights. Accordingly, we reverse the trial court’s ruling to the contrary.

The terms of the Trust Deed granted to KeyBank the power, upon India Street’s default, to enter and take possession of the property covered by the Trust Deed, to “manage and operate all or any part of the Property,” and “do any and all other things in connection with those actions that Beneficiary may in its sole discretion consider necessary and appropriate to protect the security of” the Trust Deed. (Trust Deed, § 6.3 subd. (c).) As PV Little Italy contends, the express inclusion of the Declarant’s rights in the conveyance in the Trust Deed demonstrates an intention that, upon any default by India Street, KeyBank would be able to step into India’s Street’s shoes as Declarant and exercise the Declarant’s rights to manage and protect the development, thereby maximizing its recovery on the loan at any future sale. India Street does not dispute this. Upon India Street’s default, and by virtue of the express conveyance in the Trust Deed, title to all the tangible and intangible property covered by the Trust Deed (excluding the Retail Units but including all Declarant’s rights) vested with the trustee, for the benefit of KeyBank. (See CC&R’s, § 1.15; Trust Deed, § 1.1, subd. (g).)[14]

159*159 We next consider whether the trustee had the authority under the CC&R’s to convey the Declarant’s rights to Oreo, and if so, whether Oreo effectively passed those rights on to PV Little Italy. The trial court first found that, by virtue of KeyBank having reconveyed the Declarant’s rights to India Street, Oreo had “no such rights to convey” to PV Little Italy after the foreclosure sale. The trial court did not expressly limit this finding only to those Declarant’s rights associated with the Retail Units, but rather, appears to have concluded that Oreo acquired “no such rights” — even those associated with the units as to which India Street had defaulted. However, as we have explained, the Reconveyance Deed did not transfer back to India Street any of the Declarant’s rights. Thus, even under the trial court’s reasoning, at a minimum, the Declarant’s rights as to the unsold units remained “in play” at the time of the foreclosure sale.[15]

In its briefing in the trial court, India Street acknowledged that upon the foreclosure sale, Oreo acquired those rights because it is affiliated with KeyBank. According to India Street, it was only upon the subsequent sale to PV Little Italy — an “unaffiliated third party” — that the Class B voting rights associated with the foreclosed condominium units were terminated and converted to Class A rights, pursuant to section 2.05, subdivision (b) of the CC&R’s. At the section 7616 hearing, however, India Street shifted its position, arguing that because it was the trustee that held title to all of the property, and there had been no conveyance to KeyBank, the foreclosure sale to Oreo was itself a sale to an “unaffiliated third party,” and thus, Oreo acquired no Declarant’s rights. The trial court adopted the “unaffiliated third party” approach in evaluating the nature of PV Little Italy’s rights, and concluded that because PV Little Italy “did not acquire its ownership rights via direct assignment from [India Street] and was instead an unaffiliated owner,” PV Little Italy acquired no Declarant’s rights. Not surprisingly, on appeal, India Street agrees with the trial court, arguing both that Oreo “did not acquire” India Street’s Class B membership and voting rights upon the foreclosure sale and thus had no rights to convey to PV Little Italy, and also that PV Little Italy, an entity neither affiliated with, nor a direct assignee of, India Street, could not have acquired Class B voting rights as a result of its purchase from Oreo.

160*160 The analytical flaw in the trial court’s and India Street’s reasoning is that it improperly conflates section 1.15 of the CC&R’s with section 2.05, subdivision (b). Section 1.15 defines the term “Declarant.” The reference to PV Little Italy as an “unaffiliated owner” presumably stems from section 2.05, subdivision (b) of the CC&R’s, which provides for the conversion of Class B voting rights to Class A rights upon the sale of a unit owned by Declarant to an “unaffiliated third party.” In order to determine whether the Declarant’s rights — including the Class B voting rights — in the foreclosed units were effectively transferred to Oreo, and in turn to PV Little Italy, we must first determine, under section 1.15 of the CC&R’s, who may become the Declarant, and specifically, whether a Declarant other than India Street may effectively assign the status of Declarant and the Declarant’s rights to another person or entity. The answer to that question determines whether CC&R’s section 2.05’s treatment of the Class B voting rights comes into play at all.

CC&R’s section 1.15 provides that “`Declarant’ shall initially mean [India Street] … its successors, and any person to which it shall have assigned its rights hereunder, in whole or in part, by an express written assignment.” (Italics added.) This sentence arguably may be interpreted in two different ways. Consistent with the narrow interpretation adopted by the trial court and urged by India Street, the definition may be construed to mean the following: “`Declarant’ shall initially mean India Street, and thereafter only its direct successors or assigns.” This approach construes the word “initially” as applying only to India Street. However, there is another reasonable interpretation pursuant to which “initially” modifies the entire remainder of the sentence, such that the definition would have the following meaning: “`Declarant’ shall initially mean India Street, its successors and assigns, but thereafter, `Declarant’ could be other entities as yet unnamed.” This interpretation contemplates a potentially unlimited universe of Declarants in the future, who could exercise the Declarant’s rights as set forth in the CC&R’s for as long as MetroWork remained in its developmental stages, and — specifically with respect to the enhanced voting rights — for as long as the person or entity that has the status of Declarant owns units in the property.

To resolve the arguable ambiguity in this phrase, we consider not just the language of this provision, but the larger context in which it appears, as well as the apparent purposes underlying the designation of “Declarant.” (Starlight Ridge, supra, 177 Cal.App.4th at p. 447 [“`We consider the contract as a whole and construe the language in context, rather than interpret a provision in isolation. [Citation.]'”]; Civ. Code, § 1647 [permitting court to consider circumstances under which contract was made and the matter to which it relates].) We also may consider any extrinsic evidence bearing on the interpretation of this provision, but there is virtually none relevant to this specific issue. (Winet, supra, 4 Cal.App.4th at p. 1165.)

161*161 We conclude that the language and structure of CC&R’s section 1.15 supports the second interpretation, not the more restrictive one that the trial court adopted. First, if the intent of the CC&R’s was to restrict the status of “Declarant” only to India Street or its direct assignees, then the inclusion of the word “initially” would have been superfluous; “Declarant” could simply have been defined as “India Street, its successors and its assignees.” The term “initially” is a specific modifier that was presumably included for a reason. (See, e.g., Civ. Code, § 1641 [contract should be read as whole “so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other”]; Advanced Network, Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054, 1063-1064 [119 Cal.Rptr.3d 17] (Advanced Network) [“`We must give significance to every word of a contract, when possible, and avoid an interpretation that renders a word surplusage.’ [Citation.]”].) As written, nothing in the definition limits the application of “initially” only to “India Street.” If the latter was intended, one reasonably might have expected the definition to state, “… initially India Street, and thereafter, its successors, and any person to which it shall have assigned its rights.”

Second, another provision in the CC&R’s clarifies that the status of Declarant may be conveyed to entities other than a direct assignee of India Street. CC&R’s section 7.03 provides that “[t]he rights of Declarant hereunder and elsewhere in these Restrictions may be assigned by Declarant to any successor in interest to any portion of Declarant’s interest in any portion of the property by a recorded written assignment.” (Italics added.) This language, although somewhat dense and cumbersome, specifies that the “Declarant” (and not solely India Street) may assign the Declarant’s rights to any successor in interest. In our view, this provision, read together with CC&R’s, section 1.15, shows that the status of Declarant could be held by direct assignees of India Street, or by assignees of an assignee of India Street. As long as the assignor is itself the Declarant, then the Declarant’s rights may be conveyed consistent with the CC&R’s.

Third, this broader interpretation is consistent with the purposes of the position of Declarant and the role that the person or entity holding that position would play in the successful development of MetroWork. The apparent purpose for initially making India Street the Declarant was to allow it to manage and operate MetroWork during the developmental stages, and to maximize the return on its investment until all of the condominium units were sold to others. It is reasonable that a lender providing financing for the project would want the deed to include the Declarant’s rights so that, in the event of a default, the lender would be in a position to protect, and maximize the value of, its collateral pending the further sale of the foreclosed units. Polger, India Street’s attorney, acknowledged as much. The lender, a bank, is principally concerned with recouping the loan on which the debtor has defaulted, and may not be in a position to manage a large development on a 162*162 day-to-day basis after a default. Accordingly, as happened here, the bank would logically want to sell the collateral as quickly as possible, and for as great a return as possible, perhaps before the development is completed. For these reasons, it is reasonable for the CC&R’s to authorize the transfer of the Declarant’s powers and rights to an entity other than a direct assignee of India Street, to assure that the Declarant’s role is filled for as long as might be necessary to ensure the successful completion of the project.

Having determined that the CC&R’s authorize the assignment of the Declarant’s rights to entities other than a direct assignee of India Street’s, we next address whether PV Little Italy in fact acquired the Declarant’s rights, including Class B voting rights, from Oreo, or whether, as the trial court concluded, PV Little Italy could not have acquired Class B voting rights because it was “an unaffiliated owner.”

PV Little Italy contends that because the transfer from the trustee to Oreo included all of the Declarant’s rights, and Oreo in turn assigned any and all such rights to PV Little Italy, PV Little Italy became the Declarant. In other words, PV Little Italy maintains that the status of Declarant, and all of the Declarant’s rights, including Class B voting rights, were simultaneously transferred to Oreo, and then to PV Little Italy, so there was no sale of any unit by the Declarant to an “unaffiliated” third party. India Street does not address PV Little Italy’s “simultaneous transfer” theory at all. Rather, it simply parrots the trial court’s conclusion that because PV Little Italy is neither affiliated with, nor an express assignee of, India Street, it could not have acquired any Declarant’s rights.

PV Little Italy has the better argument. First, we have concluded that the trustee obtained the Declarant’s rights upon foreclosure after India Street’s default, and that the CC&R’s authorize the assignment of the Declarant’s rights by the Declarant — whichever entity that might be — to future successors in interest. That is precisely what occurred here, in the successive transfers after the foreclosure. At KeyBank’s direction, at the trustee’s sale, the trustee conveyed to Oreo “all of its right, title and interest” in the foreclosed units of MetroWork, “[t]ogether with all of the property set forth” in an attachment to the trustee’s deed upon sale, which specifically included a description of the Declarant’s rights. This conveyance was a “unified sale,” meaning it was intended to include “all real property and personal property” covered by the security interest created by the Trust Deed. (See Cal. U. Com. Code, § 9604, subd. (a)(1)(B) [authorizing unified sale].) Thereafter, Oreo conveyed to PV Little Italy by grant deed all of its rights in the foreclosed units, and separately but simultaneously assigned to PV Little Italy, all of its Declarant’s rights. Consequently, PV Little Italy was not a third party purchaser of the foreclosed units, but rather, an assignee of the Declarant. As such, it acquired rights and property from Oreo as the Declarant.

163*163 As we have explained, the conveyance by the existing Declarant to another entity of all units owned by the Declarant, together with all of the Declarant’s rights, is a transaction that section 7.03 of the CC&R’s expressly authorizes. In our view, this is an entirely different type of transaction from that discussed in CC&R’s section 2.05, which concerns only the sale of a unit owned by Declarant to an “unaffiliated third party.” We must view CC&R’s section 2.05 in the context of the entire agreement, and construe the instrument in a manner that gives effect to all of its provisions. (See Jones v. Jacobson (2011) 195 Cal.App.4th 1, 18 [125 Cal.Rptr.3d 522] [“`We must view the language of a contract as a whole … [and] we should give effect to every provision and avoid rendering any part of an agreement surplusage.'”].) The term “unaffiliated third party” in CC&R’s section 2.05 logically cannot mean “unaffiliated with India Street.” Rather, it must mean “unaffiliated with the Declarant.” Otherwise, the power of assignment in CC&R’s section 7.03 (and § 1.15 as well, as we have interpreted it here) would be rendered a nullity.

For these reasons, CC&R’s section 2.05 does not come into operation when the Declarant is conveying all of the units that it owns to another entity that will itself become the Declarant as a result of the conveyance. If, for example, Oreo had conveyed 12 of the foreclosed units to PV Little Italy, together with the Declarant’s rights, but sold the remaining four foreclosed units to some other entity that had no affiliation to Oreo, no Declarant’s rights, and no Class B voting rights, would attach to those latter four units. Rather, the new owner of those units would have Class A membership in the Association only, pursuant to CC&R’s section 2.05. But PV Little Italy would be the new Declarant, and would possess Class B voting rights, as Declarant, to the 12 units it acquired.

The fatal flaw in India Street’s argument is that it attempts to rewrite the CC&R’s so that only India Street or its direct assignee can be “Declarant.” This is reflected in India Street’s brief on appeal, where it states, “The CC&Rs expressly granted Class B membership voting rights exclusively to India Street (or its affiliate or direct assignee).” (Italics added.) Section 7.03 of the CC&R’s proves that statement to be inaccurate. Similarly, India Street claims that “India Street’s Class B membership voting … rights” would terminate either upon “India Street’s divestiture of its entire ownership in its units or (2) India Street’s sale of a unit to an `unaffiliated third party.'” (Italics added.) However, CC&R’s section 2.05 nowhere mentions the words “India Street.” Rather, it uses the term “Declarant,” and as we have seen, the “Declarant” can be India Street, its direct assignees, or the assignees of its assignees.

(9) Accordingly, when Oreo simultaneously conveyed all of its Declarant’s rights to PV Little Italy, PV Little Italy acquired those rights, 164*164 including the Class B voting rights, pursuant to sections 1.15 and 7.03 of the CC&R’s. The consequences that arise when a Declarant sells a unit to an unaffiliated third party, as set forth in CC&R’s section 2.05, thus never arose on that transaction. For this reason, the trial court’s ruling that PV Little Italy acquired no Declarant’s rights, and no Class B voting rights as the Declarant, was erroneous.

IV. CONCLUSION
The order of the trial court is reversed. PV Little Italy shall recover its costs on appeal.

Huffman, Acting P. J., and Haller, J., concurred.

[1] Further statutory references are to the Corporations Code unless otherwise specified.

Section 7616, subdivision (a) requires that “[u]pon the filing of an action therefor by any director or member or by any person who had the right to vote in the election at issue, the superior court of the proper county shall determine the validity of any election or appointment of any director of any corporation.”

[2] We use the term “Retail Units” to readily distinguish the Anthology units from the office condominium units in the project, and to be consistent with the trial court’s usage of that term. In doing so, we do not attach any particular legal significance to that terminology.

[3] No explanation is given for why two deeds of trust were recorded for this transaction.

[4] The PVLI Assignment Agreement recites that Oreo first entered into a purchase agreement for the foreclosed units with PacVentures, Inc., the managing member of PV Little Italy, which in turn assigned that agreement to PV Little Italy. PV Little Italy denies that this was a two-step sale, and the grant deed to PV Little Italy suggests that whatever transactions may have taken place were intended to be part of a single conveyance from Oreo to PV Little Italy. Since India Street did not raise a legal issue in the trial court based on whether this conveyance occurred in one or two transactions, and does not do so on appeal, we accept on this record PV Little Italy’s representation that it simultaneously acquired both the foreclosed units and assignment of the Declarant’s rights directly from Oreo.

[5] India Street also asserts that the order is not appealable as an injunction because it was merely a “determination as to the rights of parties to exercise Class B voting rights” and did not “prohibit or mandate action by any party.” Plainly, that is not the case. The order required the prior board members to reassume control and directed the Association to hold a new election. India Street further suggests that the order is not an injunction because it did not “prohibit or mandate action on the part of [PV Little Italy].” However, the law defines injunctions as orders requiring “a person” to do or not to do something. (Code Civ. Proc., § 525; Luckett, supra, 161 Cal.App.4th at p. 84.) There is no requirement that the “person” whom the order directs to act be a particular party.

[6] Although the Association was a party defendant in the proceedings in the trial court, it expressly took no position as to whether India Street or PV Little Italy possesses the Declarant’s rights.

[7] For this reason, India Street’s assertion that KeyBank never objected to any exercise by India Street of the Declarant’s rights is not relevant to determining whether those rights were reconveyed. Prior to the foreclosure sale, KeyBank had no basis for objecting to India Street’s exercise of those rights in the normal course of its role as Declarant, as long as doing so did not impair KeyBank’s security interest. (See, e.g., Trust Deed, §§ 2.6, 5.6) Although India Street also claims that KeyBank raised no objection to India Street’s exercise of Class B voting rights or Declarant’s rights after the foreclosure sale, there is no evidence that India Street actually exercised those rights after April 10, 2009, the date on which the trustee’s deed upon sale was recorded.

[8] India Street’s assertion that KeyBank did not expressly “reserve” any security interest in the Declarant’s rights upon reconveyance is, therefore, beside the point. It is undisputed that all of those rights were conveyed to KeyBank in the Trust Deed. Under the terms of the KeyBank loan, any part of that security interest that is not released is retained by KeyBank. No “reservation” of rights was necessary.

[9] The CC&R’s make clear that no particular meaning or significance may be separately attributed to the mere use of the word “Declarant” in the term “Declarant Units.” (See CC&R’s, § 14.03 [“The Article and Section headings, titles and captions have been inserted for convenience only, and shall not be considered or referred to in resolving questions of interpretation or construction.”].)

[10] We have found only two uses of the term “Declarant Units” in the CC&R’s. Both provide, in pertinent part, that “the Declarant” and/or its successors and assigns may utilize the Declarant Units for any use permitted by law, including retail, restaurant and club uses. (CC&R’s, §§ 7.02, 8.02, subd. (b).) It may well be that India Street drafted these provisions intending to preserve for itself the right to use, as Declarant, the Retail Units for Anthology or a similar use in perpetuity, but that is not what these provisions say. Rather, these provisions protect the right of the “the Declarant” — whichever entity that might be — to use the Declarant Units in this manner.

India Street presented no evidence that KeyBank shared India Street’s understanding that Declarant rights always had to attach to the Retail Units, or that ownership of those units was to be reserved solely for India Street and solely in its capacity as Declarant. India Street asserts that KeyBank “agreed that ownership of the Retail Parcel for Anthology’s operations would be reserved solely for India Street or its related entities” (italics added), but points to no language in the CC&R’s, the construction loan, or in the Trust Deed that would substantiate that statement. Even if it is true, nothing in that “agreement” indicates that KeyBank made any representations about the future of the Declarant’s rights, and in any event, the current status of ownership of the Retail Units is consistent with India Street’s assertion: India Street (or an affiliate) owns the Retail Units and is using them for Anthology. However, it does not own them as the Declarant.

[11] Because the issue is not before us, we express no opinion on the nature of any security interest that Pacific Western may have obtained in the Declarant rights, or what may have happened to that interest once India Street defaulted on the KeyBank loan and the latter foreclosed on its remaining security interests.

[12] India Street also points to similar subordination language in the Pacific Western deeds of trust. But the effect of such language would have been no different than the effect of the Subordination Agreement with KeyBank. Until such time as India Street defaulted on the KeyBank loan, India Street was free to exercise its Declarant rights in the MetroWork project, as explained above, without interference by either KeyBank or Pacific Western.

[13] Polger stated in his declaration that he and KeyBank’s representatives discussed the release and “reallocation” of KeyBank’s “collateral,” but he does not state that the release of voting rights was discussed, and in fact, in his deposition testimony, he acknowledged that there was no such specific discussion. He further testified that he “[did not] believe that the bank reconveyed its collateral interest in the declarant rights by virtue of the reconveyance of the deed of trust.”

[14] To be clear, legal title vested not with KeyBank per se, but with the trustee, for the benefit of KeyBank. In a deed of trust, title passes to the trustee “at the time the instrument is originally executed.” (4 Witkin, Summary of Cal. Law, supra, Security Transactions in Real Property, § 169, p. 969.) Thus, the only entity with the power to convey title to a purchaser at a foreclosure sale is the trustee. (1 Bernhardt et al., Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2012) § 2.98, p. 133 (rev. 1/12).) Because KeyBank was not substituted as the trustee after the default, as it was for purposes of the reconveyance, and because it did not receive a deed in lieu of foreclosure (id., § 7.2, pp. 516-517 (rev. 1/12)), it remained only the beneficiary under the Trust Deed, with the power to direct the trustee to sell the property. (See Trust Deed, § 6.3, subd. (g).)

[15] The CC&R’s, by their terms, contemplate that there could be more than one Declarant at any given time. Specifically, the CC&R’s permit assignment of the Declarant’s rights “in whole or in part.” (CC&R’s, § 1.15, italics added; see § 7.03 [allowing the Declarant to assign its rights “to any successor in interest to any portion of Declarant’s interest in any portion of the property”].) PV Little Italy does not contend that it gained any Declarant rights as to the Retail Units.

Rick Fowler v. Golden Pacific Bancorp, Inc.

 

RICK FOWLER, Plaintiff and Respondent, v. GOLDEN PACIFIC BANCORP, INC., Defendant and Appellant.

Facts

A corporate director petitioned the court to compel an inspection of corporate books and records pursuant to Corporations Code §§ 1600, et seq.  The corporation opposed the petition arguing that because the director was involved in ongoing litigation with the corporation, the court should curtail his inspection rights because the director could use the information against the corporation in the ongoing litigation. The trial court granted the director’s petition and the corporation appealed.

Holding

The court of appeal, in upholding the trial court’s ruling, found that the mere possibility that information could be used adversely to the corporation is not by itself sufficient to defeat a director’s inspection rights found in Corporations Code § 1602. Rather, any exception to the general rule favoring unfettered access must be limited to extreme cases, where enforcing an ‘absolute right of inspection would produce an absurd result, such as when the evidence establishes the director’s clear intent to use the information to breach fiduciary duties or otherwise commit a tort against the corporation.

California has a strong public policy favoring a broad right of access to corporate records to assist directors in performing their duties in an intelligent and fully informed manner. The statutory scheme gives every director the absolute right to inspect and copy all books, records and documents of every kind, and imposes no “proper purpose” requirement. (Citation omitted.) Because the denial of access to corporate records may operate to deny a director the ability meaningfully to participate in management, any exception to the policy of “absolute” access must be construed narrowly, limited to the most extreme cases where applying the literal meaning of the words would frustrate the manifest purpose of the law.

***End Summary*

No. C092179.
Court of Appeals of California, Third District, Sacramento.
Filed June 23, 2022.

APPEAL from a judgment of the Superior Court of Sacramento County, Super. Ct. No. 34-2019-80003150-CU-WM-GDS, James P. Arguelles, Judge. Reversed with directions.

Law Office of Stephanie J. Finelli and Stephanie J. Finelli for Defendant and Appellant.

Tisdale & Nicholson and Michael D. Stein for Plaintiff and Respondent.

 

CERTIFIED FOR PUBLICATION

 

KRAUSE, J.

This is an action to compel an inspection of books and records pursuant to Corporations Code section 1600 et seq.[1] Plaintiff Rick Fowler (Fowler) sought a writ of mandate against defendant Golden Pacific Bancorp, Inc. (Bancorp), to enforce his statutory rights as a director and majority shareholder to inspect corporate books and records. Bancorp opposed the petition, arguing that the trial court should curtail Fowler’s inspection rights because he is involved in ongoing litigation with Bancorp and could use the information to undermine Bancorp’s position in the lawsuit. Unpersuaded that Bancorp met the heavy burden necessary to curtail Fowler’s inspection rights, the trial court granted Fowler’s writ petition.

Bancorp appealed, contending that the trial court erred by (1) allowing Fowler to submit additional evidence on reply without permitting Bancorp an adequate opportunity to respond; and (2) granting the writ petition and permitting Fowler to have unfettered access to Bancorp’s corporate books and records.

After we issued an oral argument waiver notice, Bancorp moved to dismiss the appeal as moot. Bancorp asserted that due to the recent acquisition of Bancorp by Social Finance, Inc., Fowler is no longer a Bancorp board member, and therefore it is impossible for this court to grant effective relief. Fowler requested oral argument. We deferred ruling on the motion until after oral argument.

We shall conclude that the primary issue raised in this appeal is moot because Fowler is no longer a member of Bancorp’s board of directors and therefore has no director’s inspection rights. Nevertheless, we exercise our discretion to reach the merits because it presents an issue of substantial and continuing public interest: whether a director’s “absolute” right of inspection under section 1602 may be curtailed because the director and corporation are involved in litigation and there is a possibility the documents could be used to harm the corporation.

We shall conclude the mere possibility that information could be used adversely to the corporation is not by itself sufficient to defeat a director’s inspection rights. Rather, any exception to the general rule favoring unfettered access must be limited to extreme cases, where enforcing an “absolute” right of inspection would produce an absurd result, such as when the evidence establishes the director’s clear intent to use the information to breach fiduciary duties or otherwise commit a tort against the corporation.

We decline to reach the other question referenced in the parties’ briefs concerning Fowler’s inspection rights as a shareholder, because that issue was not resolved by the trial court and the record is insufficiently developed for us to determine whether it is moot. Thus, we shall remand this matter for the trial court to consider whether that issue is moot and, if not, to resolve any remaining disputes in the first instance.

 

FACTUAL AND PROCEDURAL BACKGROUND

 

Bancorp was a bank holding company conducting business through its wholly owned subsidiary, Golden Pacific Bank, N.A. Fowler was a member of Bancorp’s board of directors and its largest individual shareholder, holding over 19 percent of the outstanding stock. Fowler also is the chief operating officer of a law firm, Kronick, Moskovitz, Tiedemann & Girard (KMTG).

In July 2018, Bancorp filed a lawsuit in the Sacramento County Superior Court (case No. 34-2018-00236905) against KMTG, an individual attorney at KMTG, and Fowler (the malpractice lawsuit). The lawsuit arose out of KMTG’s representation of Bancorp in prior litigation against a company called BillFloat, Inc. (the BillFloat litigation). Bancorp’s amended complaint alleges claims against KMTG and its attorney for breach of contract, breach of professional duties, professional negligence, and breach of fiduciary duties in connection with the prosecution and eventual settlement of the BillFloat litigation. Among other things, the complaint alleges that KMTG and the attorney overbilled for services, negligently failed to evaluate and prepare the case for trial, and caused Bancorp to accept a grossly inadequate settlement amount.

The complaint also alleges claims against Fowler for negligence, breach of fiduciary duty, concealment, and fraud based on his actions as a Bancorp director. Specifically, it asserts that Fowler breached his fiduciary duties by persuading Bancorp to hire KMTG for the BillFloat litigation despite knowing that KMTG was not competent to handle the litigation. It further alleges that Fowler used his position as director to persuade Bancorp to settle the BillFloat litigation for a grossly inadequate amount because Fowler knew KMTG had failed to conduct sufficient discovery and investigation to prepare the case for trial.

In September 2018, two months after Bancorp filed the malpractice lawsuit, Fowler delivered to Bancorp a written demand to inspect and copy the following books and records pursuant to section 1600 et seq.:
1. A list of the names, addresses, e-mail addresses, and holdings of all Bancorp shareholders;

2. A breakdown of the expense and income balance sheet items labeled “Other” for Bancorp and its wholly owned subsidiary bank;

3. A breakdown of where on the 2017 and 2018 consolidated financial statements the BillFloat settlement payment was booked, and where KMTG’s legal fees for 2016, 2017, and 2018 were booked;
4. Any change in control/severance/golden parachute agreements for Bancorp-affiliated parties;

5. Any resolutions approving change in control agreements or an increase in director fees and/or bonuses for 2016, 2017, and 2018;

6. Any documents evidencing payment of the personal legal fees of Bancorp president and chief executive officer, Virginia Varela, in 2016, 2017, and 2018;

7. The loan file pertaining to the Axis Energy SBA loan; and

8. The bank’s accounting books and records, and meeting minutes for its board and committees from September 2017 through the date of the request.

Fowler asserted that, as a director, he had an “absolute right” to inspect the records under section 1602. Bancorp, however, refused to permit inspection, citing conflicts of interest and concerns that Fowler was seeking the records for an improper purpose, namely, to undermine Bancorp’s position in the malpractice lawsuit.

Fowler did not immediately seek a peremptory writ to enforce his statutory inspection right. Instead, in November 2018, Fowler served Bancorp with a request for production of documents in the malpractice lawsuit seeking records substantially similar to those sought in his inspection demand letter.

When Bancorp refused to produce the requested documents, Fowler filed a motion to compel. In support of his motion, Fowler argued that the requested documents were relevant to Bancorp’s claims and his defenses in the malpractice lawsuit. Bancorp opposed the motion, asserting, inter alia, that most of the records Fowler requested were irrelevant to the lawsuit and would only be of interest in his capacity as a “disgruntled shareholder/director.” The court agreed with Bancorp. It denied the motion to compel, concluding that the document requests were overbroad, invaded third party privacy rights, and sought information that was not relevant.

Shortly thereafter, Fowler filed this action for a peremptory writ of mandate to enforce his statutory right to inspect Bancorp’s books and records. His amended petition alleges that he has an “absolute right” as a director and shareholder to inspect and copy the records pursuant to sections 1600 and 1602. In a supporting declaration, Fowler stated that he requested the inspection to protect his interests as Bancorp’s single largest shareholder and to fulfill his fiduciary duty as a director to stay informed about Bancorp’s financial condition and operations.

Bancorp opposed the writ petition, asserting that inspection should be denied because Fowler is not a disinterested director and his only motive in requesting the records is to “dismantle and undermine” Bancorp’s lawsuit against him and the law firm for which he works. Bancorp characterized the petition as an attempted “end-run” around the adverse discovery ruling in the malpractice lawsuit.

To support its claim that Fowler was requesting the documents for an improper purpose, Bancorp submitted a declaration from Bancorp board member David Roche.[2] Roche declared, inter alia, that (1) Fowler is a party to ongoing litigation with Bancorp in which it is alleged Fowler breached his fiduciary duties; (2) Fowler repeatedly stated his desire to have the litigation dismissed; (3) Bancorp’s board believes that allowing Fowler to inspect and copy the requested records would “severely undermine” its position in the litigation; (4) Fowler previously sought to compel discovery of the same records in the lawsuit, but his request was denied; (5) it was only after the adverse discovery ruling that Fowler filed the writ petition; and (6) Fowler never previously made a demand to inspect Bancorp’s corporate records.

In reply, Fowler filed a supplemental declaration responding to the factual assertions made in Bancorp’s opposition papers. Fowler declared, “Contrary to [Bancorp’s] supposition about my purpose in filing the Petition, I want to inspect the subject corporate records, especially the financial statements and working papers for these records, among other things, to learn how certain expenses and income items were calculated and what certain large numbers consist of, as well as how the compensation for [Bancorp’s] Chief Executive Officer and its directors is being determined and the basis for and calculations of certain stock transactions with [Bancorp’s] preferred shareholder.”

In his supplemental declaration, Fowler also addressed why he never previously invoked his statutory right to inspect Bancorp’s corporate records. He explained that before July 2017, he regularly received reports, had frequent exchanges with the chief executive officer and committee chairs, and had unrestricted access to most corporate documents through an online platform. It was only when Bancorp “cut off” his ability to contact employees and access corporate records online that it became necessary for him to invoke his statutory inspection rights.

The writ petition was heard on March 6, 2019. On the morning of the hearing, Bancorp filed a declaration of Virginia Varela, Bancorp’s president and chief executive officer, which sought to refute various statements in Fowler’s supplemental declaration, including his assertions that (1) he previously had online access to the records discussed in his September 2018 demand; and (2) he was wrongfully denied access to the basic financial information necessary for him to carry out his duties as a board member. The court agreed to consider the Varela declaration to the extent it responded to the factual assertions in Fowler’s supplemental declaration, but refused to consider any new grounds for denying inspection.

After a hearing, the trial court granted the writ petition. In its ruling, the court agreed with Bancorp that Fowler’s statutory inspection rights are not “absolute.” However, the court ruled that a director’s inspection rights can be curtailed only in “`extreme circumstances'” in which the corporation establishes by a preponderance of the evidence the director’s intent to commit an irremediable tort against the corporation. The court ruled that, notwithstanding the inherent conflict raised by the malpractice lawsuit, “[t]he preponderance of the evidence in this action does not establish Fowler’s intent to commit a tort against [Bancorp], much less one that is irremediable in damages.” The court thus enforced Fowler’s right to inspect the corporate books and records under section 1602.

Judgment was entered on March 17, 2020. Bancorp filed a timely notice of appeal.

While the appeal was pending, Bancorp was acquired by Social Finance, Inc. (SoFi), by and through a merger with Gemini Merger Sub, Inc. (Gemini), a temporary subsidiary of SoFi formed solely for that purpose. Pursuant to the terms of the agreement, Gemini was merged into Bancorp, with Bancorp as the surviving corporation. Further, under the agreement, the directors of Gemini became the directors of the surviving corporation. SoFi completed the acquisition of Bancorp on or about February 2, 2022.

 

DISCUSSION

 

 

I

Mootness

 

As a threshold issue, we consider whether the appeal is moot due to SoFi’s acquisition of Bancorp.

An appeal becomes moot when the occurrence of an event makes it impossible for the appellate court to grant any effective relief. (Newsom v. Superior Court (2021) 63 Cal.App.5th 1099, 1109.) “`[A]n action which originally was based upon a justiciable controversy cannot be maintained on appeal if the questions raised therein have become moot by subsequent acts or events.'” (Id. at p. 1110.)

Bancorp argues that this appeal is moot and must be dismissed because, as a result of the acquisition, Fowler is no longer a shareholder or member of Bancorp’s board of directors, and therefore no longer has standing to assert any inspection rights.

Fowler opposes Bancorp’s motion to dismiss. He argues the case is not moot for several reasons, including that he filed a “dissenter’s right” lawsuit challenging SoFi’s acquisition of Bancorp and seeking a determination of the fair market value of his shares. Further, even if the case has been rendered technically moot, Fowler argues the appeal still should be decided because it concerns an issue of public importance that is likely to recur.

We agree with Bancorp that the issue of Fowler’s inspection rights as a director is now moot. It is well established that a director’s right to inspect corporate books and records ends upon his or her removal from office. (Chantiles v. Lake Forrest II Master Homeowners Assn. (1995) 37 Cal.App.4th 914, 920 (Chantiles).) A former director has no right to an ongoing and enforceable right to inspect corporate records. (Wolf v. CDS Devco (2010) 185 Cal.App.4th 903, 919 (Wolf).) Here, it is undisputed that, as a result of SoFi’s acquisition, Fowler is no longer a Bancorp director. Thus, Fowler can no longer assert rights as a director to inspect Bancorp’s books and records, rendering the issue moot. (Chantiles, supra, at p. 920; Wolf, supra, at p. 919.)

Nevertheless, we may exercise our discretion to retain and decide an issue which is technically moot where the issue is of substantial and continuing public interest. (Chantiles, supra, 37 Cal.App.4th at p. 921; accord, La Jolla Cove Motel & Hotel Apartments, Inc. v. Superior Court (2004) 121 Cal.App.4th 773, 781-782.) We do so here. The scope of a director’s inspection rights is one of public importance which we should decide, even if it is technically moot.

We reach a different conclusion, however, regarding Fowler’s claim to shareholder inspection rights under section 1600, subdivision (a). This issue was not resolved by the trial court and the additional facts before us are inadequate for us to determine whether subsequent events have rendered the issue moot. Accordingly, we shall remand this matter for the trial court to consider whether subsequent events have rendered this issue moot and, if not, to resolve any remaining disputes in the first instance.

 

II

Bancorp’s Request for Additional Briefing

 

Turning to the merits, we first address Bancorp’s argument that the trial court erred by allowing Fowler to provide additional evidence in his reply papers while denying Bancorp a fair opportunity to respond.

As described above, in reply to Bancorp’s opposition, Fowler submitted a supplemental declaration giving his reasons for demanding an inspection and explaining why he had not made similar demands in the past. Bancorp objected to the additional evidence and, in the alternative, requested additional time to file a sur-reply brief addressing Fowler’s new evidence. The court overruled Bancorp’s objections and denied its request to file a sur-reply brief.

We review the trial court’s ruling for an abuse of discretion (Alliant Ins. Services, Inc. v. Gaddy (2008) 159 Cal.App.4th 1292, 1299), and find no abuse here. As the trial court held, “Although Fowler is the petitioner in this proceeding, it was not his initial burden to provide reasons for the inspection.” Unlike director inspection rights in other states, “[t]he California statutory scheme does not impose a `proper purpose’ requirement. . . .” (Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39 Cal.App.4th 1844, 1851 (Havlicek); cf. Del. Code Ann. tit. 8, § 220.) Thus, Fowler was not required in his moving papers to articulate a proper purpose for the inspection reasonably related to his interests as a director. He merely needed to show that he was a director and that he made a demand for inspection, which was refused. (§§ 1602, 1603.)

When Fowler made that showing, the burden shifted to Bancorp to show why the inspection should be curtailed by “just and proper conditions.” (§ 1603; Havlicek, supra, 39 Cal.App.4th at p. 1856; Saline v. Superior Court (2002) 100 Cal.App.4th 909, 915 (Saline).) In attempting to meet that burden, Bancorp presented evidence to show that Fowler was seeking the documents for an improper purpose. The trial court correctly ruled that Fowler was entitled to respond with countervailing evidence in his reply.

Bancorp argues that because the court allowed Fowler to refute the evidence presented in the opposition, the court was obliged to give Bancorp the same opportunity. But Bancorp was given an opportunity to refute the additional evidence presented in the reply. On the morning of the hearing, Bancorp filed the Varela declaration to “refute many of the misstatements and omissions” in Fowler’s supplemental declaration. The court considered that declaration to the extent it responded to the factual assertions in the supplemental declaration. The record shows that Bancorp had a fair opportunity to respond. Bancorp has failed to demonstrate that the trial court abused its discretion in refusing to allow it additional time to file a sur-reply, much less that it was prejudiced by the refusal.

 

III

 

Fowler’s Right to Inspect Corporate Records

 

Bancorp next argues that the trial court erred in granting the petition to enforce Fowler’s right to inspect corporate books and records under section 1602. We disagree.

 

A. The scope of a director’s inspection rights

 

In reviewing the trial court’s judgment granting a petition for writ of mandate, we apply the substantial evidence test to the trial court’s factual findings. (Vasquez v. Happy Valley Union School Dist. (2008) 159 Cal.App.4th 969, 980.) Legal issues, such as statutory interpretation, are reviewed de novo. (Ibid.) The scope of a director’s right to inspect corporate documents is a question of law subject to de novo review. (Saline, supra, 100 Cal.App.4th at p. 913.)

In construing section 1602, as with any statute, our task is to ascertain the intent of the lawmakers so as to effectuate the purpose of the law. (Sierra Club v. Superior Court (2013) 57 Cal.4th 157, 165.) We begin “with the words of the statute because they generally provide the most reliable indicator of legislative intent.” (Hsu v. Abbara (1995) 9 Cal.4th 863, 871.) If the language contains no ambiguity, we generally presume the Legislature meant what it said, and the plain meaning controls. (Garcetti v. Superior Court (2000) 85 Cal.App.4th 1113, 1119.)

Section 1602, which governs the right of inspection, provides in relevant part: “Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director and also of its subsidiary corporations, domestic or foreign.” (§ 1602.) By its plain terms, section 1602 establishes a broad right of inspection. (Havlicek, supra, 39 Cal.App.4th at p. 1852.) The Legislature’s choice of the word “absolute” suggests a right “having no restriction, exception, or qualification.” (Merriam-Webster Unabridged Dict. Online (2022) [as of June 10, 2022], archived at .) This “absolute” right reflects a legislative judgment that directors are better able to discharge their fiduciary duties to the corporation and its shareholders “if they have free access to information concerning the corporation.” (Havlicek, at p. 1852; Hartman v. Hollingsworth (1967) 255 Cal.App.2d 579, 581-582.)

Nevertheless, decisional authority establishes that a director’s right to inspect documents is subject to exceptions. (Havlicek, supra, 39 Cal.App.4th at p. 1855.) While the “absolute right” to inspect documents is the general rule in California, courts have held that the literal meaning of the words of the statute may be disregarded where necessary to avoid absurd results. (Havlicek, at p. 1856; see also Anderson Union High School Dist. v. Shasta Secondary Home School (2016) 4 Cal.App.5th 262, 279 [the language of a statute should not be given a literal meaning if doing so would result in absurd consequences].) Thus, a trial court may impose “just and proper conditions” upon a director’s inspection rights in appropriate cases. (§ 1603, subd. (a);[3] Havlicek, at p. 1856; Saline, supra, 100 Cal.App.4th at p. 914.)

The full scope of exceptions to a director’s “absolute” inspection rights remains unsettled. But our colleagues in other appellate districts have identified certain circumstances in which inspection rights may be curtailed.

In Chantiles, supra, 37 Cal.App.4th 914, the Fourth Appellate District, Division Three, held that the “absolute” right of a homeowners association director to access records may be limited to preserve the constitutional rights of members to keep their voting decisions private. (Id. at pp. 918, 926.) In Chantiles, a director who believed that he had been shortchanged in the tabulation of proxy votes, filed a petition to inspect and copy all the ballots cast in the association’s annual election. (Id. at p. 919.) But the trial court refused to permit the director unfettered access to the ballots. Instead, the court established a procedure whereby the director’s attorney could inspect the ballots while preserving the secrecy of how each individual member voted. (Id. at pp. 920, 926.) The appellate court affirmed. It held that the trial court had properly balanced the competing interests and determined that the director’s statutory right to an unqualified inspection must yield to the members’ constitutional right of privacy. (Id. at pp. 925-926; but see conc. opn. of Crosby, J. at pp. 927-929 [concluding damages, rather than a rejection of inspection rights, is the appropriate remedy for misapplication of corporate records].)

In Havlicek, the Second Appellate District, Division Six, considered whether the trial court properly denied inspection of corporate books and records by two dissident directors who were opposed to a corporation’s pending merger. (Havlicek, supra, 39 Cal.App.4th at pp. 1848-1850.) The directors asserted an absolute right to inspect the records, but the corporation refused to permit access because it suspected the directors might use the documents to establish a competing business. (Id. at pp. 1849-1850.) The directors filed a lawsuit to enforce their inspection rights, which the trial court denied. (Id. at p. 1850.) The appellate court reversed and remanded. (Id. at pp. 1856-1857.) It concluded that the trial court erred in refusing to grant the directors, “at the very least, an `inspection with just and proper conditions.'” (Id. at p. 1848.)

For guidance on remand, the court explained that because the right of inspection arises out of a director’s fiduciary duty—a duty to act with honesty, loyalty, and good faith in the best interests of the corporation (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1037)—courts may limit inspection rights when a director intends to misuse those rights to harm the corporation. (Havlicek, supra, at pp. 1852, 1855-1856.) The court offered the following hypothetical to illustrate the point: “A disgruntled director unambiguously announces his or her intention to violate his or her fiduciary duties to the corporation and the shareholders by using inspection rights to learn trade secrets, gain access to confidential customer lists, and compete with the corporation. In this situation, does the Legislature want the judiciary to come to the aid of the disgruntled director, enforce the `absolute right’ to inspect and help the director commit a tort against the corporation? No.” (Id. at pp. 1855-1856.) Thus, the court concluded, when the evidence shows an unfettered inspection will result in a tort against the corporation, the trial court may “exercise its broad discretion under section 1603, subdivision (a) to fashion a protective order imposing just and proper conditions on the inspection.” (Id. at p. 1856.)

In Saline, supra, 100 Cal.App.4th 909, the Fourth Appellate District, Division Three, followed Havlicek in concluding that a court may place restrictions on a director’s access to corporate records when there is evidence the director intends to use the documents to commit a tort against the corporation. (Saline, at p. 914.) However, the court clarified that this principle should “only be applied in extreme circumstances where a preponderance of the evidence establishes the director’s clear intent to use the documents to commit an egregious tort—one that cannot be easily remedied by subsequent monetary damages—against the corporation.” (Id. at p. 915.)

The Saline court refused to limit the inspection rights of a director despite evidence that the director had a conflict of interest, breached fiduciary duties, breached a confidentiality agreement, and publicly defamed management, because there was no evidence to show the director intended to use the documents obtained to “disclose trade secrets, compete with or otherwise harm” the corporation.[4] (Saline, supra, 100 Cal.App.4th at pp. 912, 914.) The court reasoned: “Only issues related to the prevention of a tort resulting from [the director’s] inspection of the documents—not the entirety of his conduct as a director—are relevant to the question of whether limiting [his] access to corporate documents was appropriate.” (Id. at p. 914.) Without evidence that the director intended to use the documents to commit a tort against the corporation, the court held it was improper to limit the director’s access. (Id. at pp. 914-915.)

In Tritek Telecom, Inc. v. Superior Court (2009) 169 Cal.App.4th 1385 (Tritek), a different division of the Fourth District (Division One) considered a related question: whether a director’s right to inspect corporate records should include attorney-client communications generated in defense of the director’s own suit for damages against the corporation. (Id. at p. 1387.) The court decided it should not. (Id. at pp. 1391-1392.) In that case, a disgruntled director sought to enforce his inspection rights after suing the corporation to vindicate his individual rights as a shareholder. (Id. at pp. 1387-1388.) The corporation did not dispute the director’s right to inspect corporate documents generally, but objected that the right of inspection should not include documents protected by the attorney-client privilege. (Id. at p. 1391.) The Court of Appeal agreed, concluding that a director’s inspection rights may be restricted when the director intends to misuse those rights to access privileged documents that were generated in defense of a suit for damages that the director filed against the corporation. (Id. at pp. 1391-1392.)

Here, in ruling on Fowler’s petition, the trial court followed Saline, supra, 100 Cal.App.4th 909, and concluded that a director’s right to inspect corporate records generally may be curtailed only in “extreme circumstances” in which the corporation establishes by a preponderance of the evidence the director’s intent to use the information to commit a tort against the corporation that cannot easily be remedied in a damages action. The trial court rejected Bancorp’s claim that the mere fact Fowler was involved in litigation with the corporation should defeat his inspection rights.

Bancorp argues that the trial court interpreted the scope of a director’s inspection rights too broadly. Bancorp argues that a court may deny access to corporate records whenever the director has a conflict of interest and there is a mere possibility the documents could be used to harm the corporation. We disagree.

Like the trial court, we conclude that exceptions to the general rule favoring unfettered access should only be applied in “extreme” cases where enforcing the “absolute” right of inspection would otherwise produce an absurd result. (Saline, supra, 100 Cal.App.4th at p. 915; Havlicek, supra, 39 Cal.App.4th at p. 1856.) We reach this conclusion for several reasons.

California has adopted a strong public policy favoring a broad right of access to assist directors in performing their duties in an intelligent and fully informed manner. (Saline, supra, 100 Cal.App.4th at p. 914; see also Chantiles, supra, 37 Cal.App.4th at p. 929 (conc. opn. of Crosby, J.).) The statutory scheme gives “`[e]very director . . . the absolute right . . . to inspect and copy all books, records and documents of every kind,’ “and imposes no “`proper purpose'” requirement. (Havlicek, supra, 39 Cal.App.4th at p. 1851; § 1602.) Because the denial of access to corporate records may operate to deny a director the ability meaningfully to participate in management, any exception to the policy of “absolute” access must be construed narrowly, limited to the most extreme cases where applying the literal meaning of the words would frustrate the manifest purpose of the law. (Havlicek, at pp. 1855-1856; see also Anderson Union High School Dist. v. Shasta Secondary Home School, supra, 4 Cal.App.5th at p. 279 [absurdity exception should be used only in extreme cases].)

Second, to construe the exception broadly would risk allowing the exception to swallow the rule. Differences of opinion invariably will arise among corporate directors. If a minority director can lose access to corporate records merely because the director is deemed hostile or adverse to management, the exception could remove the very protections that the “absolute right” of inspection was intended to supply. This invariably would impede inspections pursued for indisputably proper purposes, such as ascertaining the condition of corporate affairs or investigating possible mismanagement. (See, e.g., Henshaw v. American Cement Corp. (Del.Ch. 1969) 252 A.2d 125, 129.)

Third, applying the exception narrowly does not generally leave the corporation unprotected. If a director abuses a right of inspection to the detriment of the corporation, the corporation normally will have an adequate remedy in the form of an action against the director for breach of fiduciary duty. (Saline, supra, 100 Cal.App.4th at p. 916; Chantiles, supra, 37 Cal.App.4th at p. 929 (conc. opn. of Crosby, J.).)

We therefore agree with the Court of Appeal in Saline that the mere possibility that the information could be used to harm the corporation is not sufficient to defeat a director’s otherwise “absolute” inspection rights. (Saline, supra, 100 Cal.App.4th at p. 914.) While inspection rights may be curtailed when the corporation adduces evidence that a director intends to use those rights to violate his or her fiduciary duties or otherwise commit a tort against the corporation, we are not persuaded that a director’s right of inspection must be denied solely because the director has a conflict of interest or is embroiled in litigation with the corporation. Allowing a director to inspect records under such circumstances does not necessarily lead to an absurd result. To conclude otherwise would defeat the purpose of section 1602.

The cases on which Bancorp relies, Wolf, supra, 185 Cal.App.4th 903, and Tritek, supra, 169 Cal.App.4th 1385, are easily distinguishable. Wolf involved an inspection demand by a plaintiff who formerly served as a director of the defendant corporation. (Wolf, at pp. 906-907, 919.) Because the plaintiff was no longer a director, the appellate court held that the plaintiff did not have standing to enforce any inspection rights.[5] (Id. at p. 919.) The language in Wolf stating that the plaintiff’s threat to sue the corporation “severely undermined” his inspection rights was unsupported dictum, which we find neither compelling nor persuasive. (Ibid.)

Bancorp similarly points to a statement in Tritek suggesting that a court may limit a director’s inspection rights whenever “the director’s loyalties are divided and documents obtained by a director in his or her capacity as a director could be used to advance the director’s personal interest in obtaining damages against the corporation.” (Tritek, supra, 169 Cal.App.4th at p. 1391.) But Bancorp’s argument takes this language out of context and ignores the holding of the case, which is that a director does not have the right to access privileged documents generated in defense of a suit for damages that the director filed against the corporation. (Id. at pp. 1391-1392.) In such a scenario, the director’s intent to misuse the information to harm the corporation is self-evident. Therefore, consistent with the holdings in Havlicek, supra, 39 Cal.App.4th at pages 1855-1856, and Saline, supra, 100 Cal.App.4th at pages 914-915, it was proper to limit the director’s inspection rights to exclude the privileged documents. There has been no similar showing here—that Fowler is seeking access to documents protected by the attorney-client privilege. Thus, Tritek‘s holding simply does not apply under the facts of this case.

Bancorp also argues the trial court interpreted Fowler’s inspection rights too broadly by requiring Bancorp to show Fowler intended to use the information to commit “irremediable” harm. It contends that a threatened “irremediable” tort against the corporation is merely an “example of when a director’s inspection may be curtailed,” and not a requirement to curtail a director’s inspection rights. Bancorp argues the court should have asked only whether Fowler intended to use the information to harm the corporation.

We find it unnecessary to reach this issue because the trial court expressly found that the “preponderance of the evidence in this action does not establish Fowler’s intent to commit a tort against [Bancorp,] much less one that is irremediable in damages.” Thus, even under a more lenient standard, Bancorp failed to carry its burden.

In sum, this is not a case in which the director’s right to inspect corporate records was alleged to conflict with constitutional or other statutory protections, as in Chantiles, supra, 37 Cal.App.4th 914. Nor is it a case involving access to privileged documents generated in defense of a suit for damages that the director filed against the corporation, as in Tritek, supra, 169 Cal.App.4th 1385. The only accusation in this case was that Fowler intended to breach his fiduciary duties in some fashion by using the records sought adversely to the corporation in the malpractice lawsuit. Under these circumstances, the trial court properly considered whether Bancorp showed by a preponderance of the evidence that a protective order was necessary to prevent Fowler from breaching his fiduciary duties or otherwise committing a tort against the corporation. (Saline, supra, 100 Cal.App.4th at p. 915; Havlicek, supra, 39 Cal.App.4th at p. 1856.)

 

B. Sufficiency of the evidence for the trial court’s ruling

 

We next consider the trial court’s finding that Bancorp failed to make a sufficient evidentiary showing to justify restrictions in this case. This presents a question of fact. (Saline, supra, 100 Cal.App.4th at p. 913; Hall v. Regents of University of California (1996) 43 Cal.App.4th 1580, 1586; Hartman v. Bandini Petroleum Co. (1930) 107 Cal.App. 659, 661.)

Bancorp argues that it submitted significant evidence demonstrating Fowler intended to harm the corporation by using the documents to undermine the claims against him in the malpractice litigation. The trial court disagreed, finding that Bancorp failed to carry its burden. Although the court acknowledged the divergence of interests between Fowler and Bancorp with respect to the malpractice lawsuit,[6] the court was not persuaded that Fowler’s inspection was motivated by an improper purpose or that he intended to breach fiduciary duties or otherwise commit a tort against the corporation.

It is not our function on appeal to reexamine whether a preponderance of the evidence supports Bancorp’s position. We are bound by the fundamental appellate rule that the judgment of the lower court is presumed correct and that all intendments and presumptions will be indulged in favor of its correctness. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) The appellant has the burden to overcome that presumption and show reversible error. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610.) Where, as here, the issue on appeal turns on a failure of proof, the question for a reviewing court is whether the evidence compels a finding in favor of the appellant as a matter of law, i.e., whether the evidence was “`”of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.”‘” (Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 466; accord, Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761, 769.) Bancorp falls well short of that standard.

In opposing the petition, Bancorp relied primarily on evidence that Fowler (1) previously breached his fiduciary duties in connection with the BillFloat litigation; and (2) unsuccessfully sought to obtain the same corporate records as part of his discovery in the malpractice lawsuit. The first category of “evidence,” consisting largely of unsupported allegations, had little persuasive value on the question whether Fowler was likely to use the requested corporate records to breach his fiduciary duties or otherwise commit a tort against the corporation. (Saline, supra, 100 Cal.App.4th at p. 914 [only the director’s likely use of the information is relevant, not the entirety of his or her conduct as a director].)

As to the second category of evidence, Bancorp argues that it proved Fowler’s intent to harm the corporation by using the information to undermine Bancorp’s lawsuit. The trial court, however, found otherwise. It credited Fowler’s declarations that the purpose of the inspection was related to his continuing duties as a member of Bancorp’s board of directors.”[W]e must defer to the trial court’s determinations of credibility.” (Harris v. Stampolis (2016) 248 Cal.App.4th 484, 498.)

Moreover, even if we were to find that Fowler had an ulterior motive, Bancorp argued, and the trial court in the malpractice lawsuit agreed in its discovery ruling, that the documents Fowler sought were irrelevant to the litigation. Thus, regardless of Fowler’s motives, there is no support for Bancorp’s vague assertion that allowing Fowler access to the records would “severely undermine” its position in the lawsuit. (See Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 357 [doctrine of judicial estoppel prohibits a party from asserting a position that is contrary to a position successfully asserted in the same or some earlier proceeding].)

On this record, we conclude the trial court did not err in finding Bancorp’s evidence insufficient to curtail Fowler’s “absolute” right to inspect corporate records.

 

DISPOSITION

 

Bancorp’s request for judicial notice is granted. Bancorp’s motion to dismiss is denied. The judgment is reversed as moot. This reversal does not imply that the judgment was erroneous on the merits, but is solely for the purpose of returning jurisdiction over the case to the trial court by vacating the otherwise final judgment solely on the ground of mootness. On remand, the trial court is directed to dismiss Fowler’s claim to a director’s right of inspection under section 1602 as moot. The trial court is directed to consider whether Fowler’s claim to a shareholder’s right of inspection under section 1600, subdivision (a) is also moot and, if not, to resolve any remaining disputes between the parties relating to that issue. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)

ROBIE, Acting P. J. and HULL, J., concurs.

[1] Undesignated statutory references are to the Corporations Code.

[2] The trial court sustained evidentiary objections to the Roche declaration. The rulings on those objections are not challenged in this appeal.

[3] Section 1603, subdivision (a) provides, in part: “Upon refusal of a lawful demand for inspection, the superior court of the proper county, may enforce the right of inspection with just and proper conditions or may, for good cause shown, appoint one or more competent inspectors or accountants to audit the books and records kept in this state and investigate the property, funds and affairs of any domestic corporation or any foreign corporation keeping records in this state . . . and to report thereon in such manner as the court may direct.”

[4] The trial court’s order refused the director access to documents protected by the attorney-client privilege and work product doctrine, and the director did not challenge that condition. (Saline, supra, 100 Cal.App.4th at pp. 912-913.)

[5] In the course of explaining the plaintiff’s lack of standing, the court in Wolf suggested that a director’s inspection rights may be denied if the director is not “disinterested.” (Wolf, supra, 185 Cal.App.4th at p. 919.) We find this language to be erroneous dictum to the extent it suggests a director’s inspection rights may be denied based merely on the existence of a conflict of interest or adversarial relationship between the director and the corporation.

[6] We grant Bancorp’s request to take judicial notice that on September 21, 2021, Fowler filed a lawsuit against Bancorp challenging the proposed SoFi merger/acquisition, but we take notice of it only for purposes of the mootness claim, and not for purposes of judging the sufficiency of the evidence. (California School Bds. Assn. v. State of California (2011) 192 Cal.App.4th 770, 803; Duronslet v. Kamps (2012) 203 Cal.App.4th 717, 737.)

Winchester Community Association v. Perrotta

Winchester Community Association v. Perrotta

(July 20, 2021, No. C085295)___Cal.App.5th___ [2021 Cal. App. Unpub. LEXIS 4684].

Court of Appeals of California, Third District, Placer

Filed July 20, 2021

No. C085295

Summary by Jillian M. Wright, Esq.:

After a dispute over approval of a landscape plan was litigated, the parties disagreed over which party had won, and which party was therefore entitled to attorney fees. The court determined the association was the prevailing party under Civil Code section 5975 because the owner failed to establish that the settlement agreement they disputed was invalid.

TAKEAWAY: In suits to enforce the governing documents, the prevailing party is entitled to attorney fees. However, which party prevails is not always clear, and the court must make that determination. This case holds that a court has not abused its discretion in awarding attorney’s fees if its determination regarding the prevailing party does not exceed the bounds of reason.

***End Summary***

WINCHESTER COMMUNITY ASSOCIATION, Plaintiff, Cross-defendant and Respondent,
v.
CHARLES FRANK PERROTTA et al., Defendants, Cross-complainants and Appellants.

Appeal from the Super. Ct. No. SCV0029936.

NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

BLEASE, Acting P. J.

A dispute between the appellants, husband and wife Charles Frank Perrotta and Charlotte Van Warmerdam Perrotta (collectively the Perrottas), and respondent Winchester Community Association (Association) over the landscaping of appellants’ home that they purchased in respondent’s development is before us for a second time. In the first appeal, we held a settlement agreement between the Perrottas and the Association was enforceable, it required the Perrottas to submit both a landscape plan and a site plan to the Association for approval before beginning work on their property, the Perrottas submitted the necessary plans within the time required under the agreement, and the Association prevented the Perrottas from performing the work under the settlement agreement. We accordingly reversed the judgment entered in favor of the Association and the postjudgment order awarding the Association attorney fees and costs and remanded with directions.

The case before us now involves the trial court’s award on remand of attorney fees to the Association as the prevailing party in the litigation. The Perrottas contend on appeal they were entitled to recover fees under the Davis-Stirling Act (Act) as the prevailing party, they are entitled to costs as a matter of law even if they are not entitled to fees, and the award of fees and costs to the Association was excessive.

We conclude it was within the trial court’s discretion to find the Association as the prevailing party, the Perrottas are not entitled to costs under Code of Civil Procedure section 1032 as the trial court had discretion to determine the Association was the prevailing party, and the amount of fees and costs awarded by the trial court was not affected by a prior award of fees stemming from the Association’s successful anti-SLAPP motion against the Perrottas. We shall affirm.

BACKGROUND
The relevant facts and procedure are taken largely from our opinion in the prior appeal,[1] supplemented where necessary by the records in this and the prior appeal.

Winchester is a common interest development governed by the Act, which is set forth in Civil Code[2] section 4000 et seq. and provides general rules for the governance of planned developments. The community is comprised of upscale, single-family homes in the Sierra Foothills and is managed and maintained by the Association, which is governed by a board of directors (Board) and subject to a recorded declaration of conditions, covenants, and restrictions (CC&R’s), the Bylaws of the Association, and the Design Guidelines and Regulations (Design Guidelines). All lot owners in the community are members of the Association.

The Perrottas own lot 85, located at 1101 Holly Leaf Lane. As such, they are members of the Association and subject to the CC&R’s, Bylaws of the Association, and Design Guidelines. They purchased the lot, which had been in foreclosure, on September 30, 2009. At that time, the lot contained a residence that was nearly complete and a driveway, but was devoid of any landscaping. The original owner/builder had submitted a site plan that had been approved by the Winchester Design Review Committee (Committee), but he had not submitted a landscape plan. It was a common practice, and completely acceptable, for owners to defer submission of a landscape plan.

Pursuant to section 5.01(a) of the CC&R’s, subject to certain exceptions not applicable here, “prior to submittal to the County for building permits and before commencement of construction or installation of any Improvement within Winchester, the Owner planning such Improvement must submit to the Design Committee a written request for approval. The Owner’s request shall include structural plans, specifications and plot plans satisfying the minimum requirements set forth in the Design Guidelines . . . .” “The term `Improvement’ . . . includes, without limitation, the construction, installation, alteration or remodeling of any Residence structures, garages, out buildings, walls, fences, swimming pools, landscaping, landscape structures, skylights, patios . . . or any other structure of any kind. Any clearing or grading of a Homesite or alteration of natural drainage courses shall be considered a work of `Improvement’ requiring approval hereunder.”

The Design Guidelines set forth a “design review process,” which must be followed for all major site and/or landscaping improvements. Improvement plans are reviewed by the Committee, which evaluates such plans on the basis of the Design Guidelines.

On December 22, 2009, about three months after the Perrottas purchased their lot, Kyle Bodyfelt, the Association’s property manager, directed the Perrottas to provide him with a copy of their “landscape plan” by January 8, 2010. The Perrottas responded that they were “focusing on completing the inside” of their residence and had yet to decide what they wanted outside or “locate and hire a competent landscape designer.” Accordingly, they advised Bodyfelt that May 30, 2010, would be a “more realistic” date on which to submit the landscape plan.

On February 17, 2010, the Committee advised the Perrottas that their request for an extension to May 30 was denied and directed them to submit a landscape plan by March 19, 2010. The Committee explained that the Perrottas’ occupancy of the residence “on a fairly regular basis without having submitted the required landscaping plans,” constituted a clear violation of section 5.14(b) of the CC&R’s, which requires that “[a]ll approved landscaping” be completed by the time the county issues a certificate of occupancy.

In February or March 2010, the Perrottas retained Jeff Ambrosia, a licensed landscape architect employed by Yamasaki Landscape Architecture, to develop landscape construction documents for their property. At all relevant times herein, Ambrosia also served as a consultant to the Committee, and as such, reviewed landscaping documents of new homeowners. As a result, he was familiar with the CC&R’s and Design Guidelines. The Perrottas instructed Ambrosia to prepare a landscape plan that would be accepted by the Association.

On March 25, 2010, Ambrosia sent the Committee a diagram showing a secondary driveway across the front of the residence that was intended to provide access to the front door. The Committee denied the Perrottas’ request to install the proposed driveway.

On April 16, 2010, Bodyfelt and members of the Committee met with Charles Perrotta and Ambrosia on the Perrottas’ property to discuss the proposed secondary driveway. A week later, the Committee wrote to the Perrottas and proposed three alternatives to the Perrottas’ proposed secondary driveway. Ambrosia responded to the letter, noting that the options provided by the Committee “would require a tremendous expense” and result in an unnecessary hardship.

On May 26, 2010, the Committee notified the Perrottas that it was standing by its denial of their request for a “second driveway” and requested that the Perrottas meet with members of the Board and the Committee on June 15, 2010, “to discuss . . . a time frame for submittal and completion of landscape plans . . . .” The Perrottas advised the Committee that they had business out of the area on June 15, 2010, and would be on vacation in early July, and suggested a meeting in late July.

On July 16, 2010, the Board sent the Perrottas written notice of a hearing on August 3, 2010, to address various alleged violations of the Association’s governing documents, including the lack of landscaping and failure to submit “plans and fee[s].” The Perrottas advised the Board that they were unavailable on August 3, 2010, and on July 30, 2010, submitted a landscape plan for the property. According to Nancy Jakse, the Board president, the landscape plan contained “a number of elements . . . that were inconsistent with the site plan of the already approved plans” submitted by the prior owner. Accordingly, the landscape plans were not approved.

The hearing went forward on August 3, 2010, without the Perrottas. The Board determined that it needed more information and continued the hearing to October 6, 2010. Meanwhile, on August 4, 2010, the Committee wrote to the Perrottas and requested clarification as to whether they intended to use the previously approved site plan or submit a modified plan of their own.

At the October 6, 2010, hearing, the Perrottas indicated that they intended to complete the project according to the previously approved site plans, and Jakse informed them that there were many elements on the previously rejected landscape plan for which the Board had no “architectural information.” The Perrottas agreed to submit a new landscape plan by the end of October 2010, and complete landscaping their property by the end of January 2011. The deadline for submitting the revised landscape plan was later extended to November 2010. Following the hearing, the parties continued to discuss the Perrottas’ desire for a secondary driveway but were unable to resolve the issue. The Perrottas did not submit a revised landscape plan by the end of November 2010, and in January 2011, the parties agreed to mediate the dispute.

The mediation took place on April 1, 2011, before retired superior court judge Darrel Lewis. Board president Jakse and Committee chair Richard Breaux represented the Association at the mediation and were accompanied by the Association’s counsel. The Perrottas and their counsel were also present. The mediation continued all day and ended with the formulation of a “Settlement Agreement.” The document is seven pages in length, with one attachment. The mediator provided a three-page printed document with general terms as a courtesy to the parties to expedite the formulation of the agreement. Some of the provisions set forth therein are crossed out, while others have been edited by hand. Specific terms negotiated by the parties and their attorneys are set forth in four handwritten pages. The document was executed by the parties and their attorneys.

The first three printed pages provided in pertinent part: “The parties hereby agree to settle this dispute in its entirety on the terms set forth below.” “[E]ach party waives . . . the right to any known claims” against the other.”It is the intent of the parties that this agreement is binding and enforceable.” “This Agreement represents the complete understanding between the parties.”

The remainder of the agreement was handwritten. It provided in its entirety:

“This agreement pertains to driveway and landscape issues only. All other issues are dropped at this time.
“Both parties agree that the goal of this agreement is to complete the landscaping and driveway of the residence in question and to obtain a certificate of occupancy from Placer County at the earliest practicable date.
“Perrotta agrees to obtain [a] signed final inspection from Placer County on all permits relating to the subject property not later than September 15, 2011.[3]
“The above deadline of September 15, 2011 shall be extended by the number of calendar days that elapse between the simultaneous submission date of landscape plans and separate site plans to Winchester and the date Perrotta is notified of approval of both said plans.
“The above deadline of September 15, 2011 shall be extended additionally by the number of calendar days that elapse between the submission date of any necessary plans to Placer County and the date Perrotta is notified of approval of said plan.
“Perrotta will submit payment of $300 simultaneously with submission of the landscape plans to Winchester.
“Perrotta will submit payment of $5,000 as a compliance deposit to Winchester simultaneously upon receiving the stamped site plans and landscape plans. Said deposit shall be placed in escrow and returned to Perrotta upon completion of the site plans and landscaping plans referred to above. See Section 5.3 of Winchester design guidelines and regulations. Final inspection of the property will be to determine that the Perrottas are in compliance with the plans.
“Perrotta agrees to obtain a $75,000 completion bond, prior to starting construction, wherein Winchester is solely named as beneficiary of the bond, to be paid to Winchester in the event Perrotta fails to complete their obligations as specified in this agreement. The parties agree that each party will pay 50% of the fees for obtaining this bond.
“Winchester agrees to drop the April 6, 2011 compliance and fine meeting.
“The parties agree that in the event that Perrotta submits a landscape and/or site plan which envisions construction of a second driveway/turnaround within the shaded portion of the setback area as depicted in Attachment A & said plans are otherwise in compliance with the Association[‘s] governing documents & Design Review Guidelines, the Association agrees to issue Perrottas a variance to permit construction of said driveway [within] the shaded portion of the setback in Attachment A. The parties further agree and understand that the Association’s issuance of a variance does not otherwise supersede or replace any additional requirements that may be required by the County for approval of said plan(s) &/or issue of a variance for construction [within] the setback.
“The Association further represents that as of the date of this agreement, the Association is of the opinion that that Perrotta building structure is in compliance with the Association’s governing documents and Design Review Committee Guidelines.”
On May 19, 2011, the Perrottas submitted a seven-page set of “Landscape Development Plans” and a $300 landscape review fee to the Committee. The plans were prepared by the Perrottas’ landscape architect Ambrosia. In addition to a “Cover Sheet,” the plans consist of the following pages: “Amenities Plan”; “Hardscape Plan”; “Planting Plan”; “Irrigation Plan”; “Lighting Plan”; “Planting Details”; and “Irrigation Details.” Among other things, the plans showed property lines, site envelope, building envelope, building footprint, proposed secondary driveway, fencing, retaining and seating walls, flagstone and asphalt paving, hot tub and concrete pad, pizza oven, stepping stones, metal gate, existing rock shale, and existing drainage canal.

Jakse and Breaux reviewed the plans and found them deficient. In a letter dated May 25, 2011, Breaux informed the Perrottas that “per page 4 of the mediation settlement agreement, you were required to simultaneously submit landscape plans and separate siteplans for approval. Since you failed to submit site plans for architectural review to replace or modify the currently approved . . . site plan sheets . . ., no approval action can be taken by the [Committee] relative to the landscape plans. As has been communicated many times before, landscape plans must conform to approved architectural plans.” Breaux continued, “There are numerous elements depicted on your landscape plans that are beyond the scope of landscape review and must go through architectural approval; e.g., the driveways, parking pad, spa, expanded deck, retaining walls, fencing, and gate. Any element shown on sheets 1 and 2 of your currently-approved plans that you don’t intend to install needs to be removed from your site plan. Similarly, any new or modified elements must be shown with supporting engineering/architectural detail, if required. The proposed site plan must also reflect the grading and drainage modifications that go along with your new or modified elements.” Breaux further advised that the landscape elements of the plans (planting, irrigation, & lighting) had been reviewed by the Committee’s outside landscape review consultant, who saw no issues, but explained that “approval of the landscape plans can only occur when site plans have been approved first or simultaneously.” Finally, Breaux indicated that the “second driveway/turnaround” depicted in the plans extended beyond the shaded area of the setback as agreed to in attachment A to the settlement agreement and noted that “this issue will have to be corrected” in order for “your site plan to be approved when you submit it.”

Shortly thereafter, Jakse, Breaux, Bodyfelt, and Ambrosia met on the Perrottas’ property to discuss the proposed secondary driveway. During the meeting, Ambrosia acknowledged that the proposed driveway depicted in the plans extended beyond the area provided for in attachment A to the settlement agreement and provided a revised layout, which he “put on the ground so that [Jakse and Breaux] could see that it truly did fit within the shaded area.” The Association was concerned that the county might not approve the variance agreed to at the mediation, and Jakse suggested that the Perrottas obtain approval from the county for the proposed driveway before submitting revised plans to the Committee to avoid wasting money on engineering expenses.

Sometime prior to June 30, 2011, Ambrosia, on behalf of the Perrottas, submitted “an exhibit [to the county’s planning division] that showed what [they] were trying to do” in terms of the driveway. On June 30, 2011, the Perrottas met with the county’s senior planner, and on August 22, 2011, were advised that the agency’s director had approved their “request to construct the driveway as shown on the draft Yamasaki plan,” contingent upon the submission of “a new grading plan for review and approval by the Placer County Engineering and Surveying Division prior to initiating work on the driveway and/or landscaping.” On September 19, 2011, the county advised the Perrottas that a grading permit was not required.

Meanwhile, on August 30, 2011, the Association wrote to the Perrottas, reminding them that the settlement agreement “requires you to `obtain a signed final inspection from Placer County on all permits relating to the subject property not later than September 15, 2011,'” and noted that “[w]ith less than a month to complete your project, you have yet to obtain landscape and site plans stamped by Winchester, and to pay the $5,000 compliance deposit, both of which are prerequisites to obtaining final County approvals.”

The Perrottas did not respond to the Association’s August 30, 2011, letter, and on September 23, 2011, the Association sued the Perrottas for breach of the settlement agreement and specific performance.

On October 10, 2011, Ambrosia, on behalf of the Perrottas, submitted a revised 10-page set of “Landscape Development Plans” to the Association. In addition to a “Cover Sheet,” the plans consist of the following pages: “Amenities Plan”; “Grading & Drainage Plan”; “Grading Profile”; “Hardscape Plan”; “Construction Details”; “Planting Plan”; “Irrigation Plan”; “Lighting Plan”; “Planting Details”; and “Irrigation Details.” The proposed secondary driveway depicted in the revised plans falls within the area set forth in attachment A to the settlement agreement. As compared to the May 2011 plans, the revised plans “added a tremendous amount of detail in terms of grading, drainage, [and] driveway layout,” and included elevations as requested by the Association.

On October 20, 2011, the Association advised the Perrottas that “[t]he tendered landscape development plans will be held by the Association with the review of those plans by the Association’s Design Review Committee being held in abeyance until such time as a site plan is also furnished to the Association.”

On February 14, 2012, the Perrottas filed a cross-complaint against the Association for cancelation and rescission of the settlement agreement and declaratory relief. Among other things, the Perrottas sought a declaration that the Association violated and continues to violate its own CC&R’s and Design Guidelines in the landscape approval process.

The cross-complaint also alleged defamation, intentional infliction of emotional distress, elder abuse, and breach of contract. Pursuant to the anti-SLAPP statute, Code of Civil Procedure section 425.16, the Association filed a successful special motion to strike the defamation, intentional infliction of emotional distress, elder abuse, and breach of contract claims. The trial court awarded the Association $5,000 attorney fees for the anti-SLAPP motion.

Following a five-day bench trial in May 2013, the trial court entered judgment in favor of the Association and against the Perrottas. The trial court found that the Perrottas breached the settlement agreement and ordered them to perform their obligations there under the same. In particular, the trial court determined that the settlement agreement constituted a valid and enforceable agreement and rejected the Perrottas’ claim that the agreement was ambiguous as to whether they were required to submit both a landscaping and a site plan to the Association for approval. The court found that “[u]nder a plain meaning interpretation, the Settlement Agreement required [Perrotta] to submit both landscape plans and site plans,” and determined that “no site plan [had] ever been submitted.” The trial court rejected the Perrottas’ claim that the September 15, 2011, deadline had been extended and ordered the Perrottas “to file a separate site plan . . . as defined in the Appendix to the Design Guidelines, within 60 days from the date this Judgment is entered.” The trial court found against the Perrottas on their cross-complaint. In particular, the trial court found that the Perrottas’ claim that the Association violated the CC&R’s and Design Guidelines in failing to approve the Perrottas’ plans was superseded by the settlement agreement and therefore declined to address it.

Following the trial, the court determined that the Association was the prevailing party and entered a postjudgment order awarding the Association $159,269.61 in attorney fees and costs.

The Perrottas appealed, contending (1) the settlement agreement was unenforceable because it was never consummated, (2) even if it was enforceable, it did not require them to submit a separate site plan in addition to a landscape plan, (3) the September 15, 2011 deadline was extended approximately three months, and (4) even if they were required to submit a separate site plan, the revised plans submitted on October 10, 2011, included such a plan. The Perrottas also assert that the trial court erred in declining to address their claim that the Association violated its own policies and procedures, and awarding the Association attorney fees and costs.

We concluded the settlement agreement was enforceable and required that the Perrottas submit both a landscape plan and a site plan to the Association for approval before beginning work on their property, the September 15, 2011 deadline was extended 81 days, the trial court’s implied finding that the revised plans submitted in October 2011 did not include a site plan is not supported by substantial evidence, and the Association prevented the Perrottas from performing under the settlement agreement by refusing to review those plans. Accordingly, we reversed the judgment entered in favor of the Association, as well as the postjudgment order awarding the Association attorney fees and costs, which was based on the judgment.

On remand, the Association filed a motion to strike or tax costs and renewed its motion for attorney fees totaling an adjusted amount of $157,146.44 as the prevailing party, while the Perrottas filed a bill of costs and a motion for $275,932.90 in attorney fees.

The trial court found “the Association ultimately met its objective to force the Perrottas to comply with the settlement agreement, and by extension, the CC&Rs.” While the Perrottas achieved some positive net effects, “they were unsuccessful in obtaining a finding of invalidity of the settlement agreement, or a violation by the Association of the CC&Rs and Design under the Guidelines,” leading the court to conclude the Association was the prevailing party. The court also found the amount requested by the Association was reasonable and accordingly awarded it the full $157,146.44, and granted its motion to strike or tax costs. The trial court denied the Perrottas’ motion to tax or strike costs and for fees pursuant to the Act and section 1717, finding the Association was the prevailing party. The court also modified its prior judgment to include these orders and to conform to our ruling in the prior appeal.

DISCUSSION
I
Prevailing Party
The Perrottas contend the trial court erred in finding the Association rather than they were the prevailing party under the Act, and they were therefore entitled to fees and costs under it, or in the alternative, the attorney fee provision in section 1717.

“`The Davis-Stirling Act, enacted in 1985 [citation], consolidated the statutory law governing condominiums and other common interest developments.’ [Citation.] `The Davis-Stirling Act includes provisions addressing alternative dispute resolution (ADR), including the initiation of such nonjudicial procedures, the timeline for completing ADR, and the relationship between ADR and any subsequent litigation.’ [Citation.] [¶] Among other things, the legislation provides that `[a]n association or a member may not file an enforcement action in the superior court unless the parties have endeavored to submit their dispute to alternative dispute resolution pursuant to this article.’ [Citation.]” (Rancho Mirage Country Club Homeowners Assn. v. Hazelbaker (2016) 2 Cal.App.5th 252, 258 (Rancho Mirage).)

The Act contains the following provision: “In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.” (§ 5975, subd. (c).) This has been extended to include costs and fees expended in ADR under the Act. (Grossman v. Park Fort Washington Assn. (2012) 212 Cal.App.4th 1128, 1134.)

In determining who is the prevailing party, a trial court is not bound by any “rigid interpretation” of that term, but instead must determine “on a practical level” which side prevailed. (Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568, 1574.) The trial court’s determination of the prevailing party is reviewed for abuse of discretion. (Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 94.) “`”The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can reasonably be deduced [from the facts, the reviewing court has no authority to substitute its decision for that of the trial court.”‘ [Citations.]” (Goodman v. Lozano (2010) 47 Cal.4th 1327, 1339.)

The Perrottas claim they were the prevailing party by accomplishing their primary objective, to show that they did not breach the settlement agreement and were entitled to have the Association accept their October 2011 plans. They assert the cross-complaint was essentially defensive in nature, and that a defendant who alleges an essentially defensive cross-complaint may be the prevailing party notwithstanding an adverse result on the cross-complaint. The Perrottas additionally note that their answer to the Association’s complaint included affirmative defenses such as failure of performance by the Association, waived claims by the Association, and the Association’s breach excused the Perrottas’ performance, which would help achieve their primary objective. In addition, the Perrottas observe the Association refused their request to admit they received the revised plans in October 2011, and refused to admit that it never responded to this submission of completed plans.

The trial court was guided by two cases, Rancho Mirage and Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761 (Almanor). We are likewise persuaded by these cases.

Rancho Mirage involved a dispute between a condominium owner and the homeowner’s association regarding changes the owner made to the patio area of the condominium unit. (Rancho Mirage, supra, 2 Cal.App.5th at pp. 255-256.) Pursuant to mediation under the Act, the parties agreed for the owners to make certain modifications within 60 days. (Rancho Mirage, at p. 256.) When the modifications were not made in the allotted time, the association sued, seeking specific performance and declaratory relief; subsequently the parties reached agreement on modifications slightly different from those set forth in the mediation agreement. (Id. at p. 257.) The parties could not agree on who should bear the litigation expenses, and the trial court ultimately awarded attorney fees and costs to the homeowner’s association. (Id. at pp. 257-258.)

The award was affirmed on appeal. (Rancho Mirage, supra, 2 Cal.App.5th at p. 256.) It found the trial court’s determination that the homeowner’s association was the prevailing party on a practical level was “not beyond the bounds of reason.” (Id. at p. 261.) While the owners focused on the differences between the modifications made and those in the settlement agreement, the Court of Appeal noted that “[t]he `action’ at issue in the section 5975 analysis includes not only the litigation in the trial court, but also the prelitigation ADR process. [Citation.]” (Ibid.) The Court of Appeal found “[t]he Association wanted defendants to make alterations to their property to bring it in compliance with the applicable CC&Rs, specifically, by installing openings in the side wall of the patio, and altering the drapery on the patio. The Association achieved that goal, with defendants completing the modifications to the patio in September 2014.” (Ibid.)

Almanor involved a dispute in which the homeowners association sought to impose fines and related fees for the property owners’ alleged rules violations related to the owners’ leasing of their properties as short-term vacation rentals. (Almanor, supra, 246 Cal.App.4th at p. 765.) The defendant property owners disputed both the fines and the association’s authority to enforce restrictions on their properties. (Id. at pp. 766-767.) They filed a cross-complaint “for damages and equitable relief based on breach of contract, private nuisance, and intentional interference with prospective economic advantage,” as well as establishing the imposition of fines was unlawful, arbitrary, and unfair. (Id. at p. 767.) The trial court ruled against the defendants on the cross-complaint, but also rejected many of the fines, upholding only $6,000 of the $54,000 in fines assessed by the homeowner’s association. (Id. at pp. 767-768, 769.) It found the homeowner’s association to be the prevailing party and awarded it costs and fees under the Act. (Id. at pp. 768-769.)

The Court of Appeal affirmed the award of costs and fees. (Almanor, supra, 246 Cal.App.4th at p. 765.) It found the pivotal issue in the litigation was whether the fines were enforceable under California law and the CC&Rs. (Id. at pp. 774-775.) While the defendants’ partial success on the fines imposed substantially reduced their liability for damages and supported their position that the rules could not impose an unreasonable burden on their property, “by upholding a subset of the fines, the court ruled more broadly that Almanor could impose reasonable use restrictions on the Carsons’ properties, despite their authorized commercial use. That ruling echoed Almanor’s stated objective at trial that the association sought to counter the Carsons’ position that `because their lot is zoned “Commercial,” they are not bound by the CC&R’s or the Rules.'” (Id. at p. 775.) Finding Almanor was the prevailing party was not an abuse of discretion. (Id. at p. 776.)

We likewise find no abuse of discretion in finding the Association to be the prevailing party. Both in the events leading up to the mediation and those after, the Association sought to get the Perrottas to submit acceptable landscaping plans and then landscape their home in accordance with the CC&R’s and the settlement agreement. While the Perrottas sought to submit the necessary plans following the agreement, a dispute over their timely compliance led to the instant litigation. In response to the Association’s suit, the Perrottas claimed, at trial and on appeal, that they did not breach the agreement and that the agreement was invalid and unenforceable. While they ultimately succeeded in establishing that they had not breached the agreement and that the Association prevented them from completing one of their obligations, the Perrottas nonetheless failed to establish that the settlement agreement was invalid or that they were excused from their duty of performance.[4]

We are unpersuaded by the Perrottas’ claim that their failure to prevail on the cross-complaint should be overlooked as the claims therein were essentially defensive in nature. This argument is based on Hsu v. Abbara (1995) 9 Cal.4th 863, where the Supreme Court held a trial court may not find there was no prevailing party under section 1717 “when the court renders a simple, unqualified decision in favor of the defendant on the only contract claim in the action.” (Hsu, at pp. 865-866.) The Perrottas rely on footnote 10 of the Hsu opinion, which states in full, “When there are cross-actions on a contract containing an attorney fees provision, and no relief is awarded in either action, a trial court is not obligated to find that there is no party prevailing on the contract for purposes of section 1717. If the court concludes that the defendant’s cross-action against the plaintiff was essentially defensive in nature, it may properly find the defendant to be the party prevailing on the contract.” (Id. at p. 875, fn. 10.) This does no more than state a court has the discretion to determine a cross-complaint was defensive rather than a focus of the litigation when determining the prevailing party. It was within the trial court’s discretion to conclude the cross-complaints were more than merely defensive when determining who prevailed in this litigation.[5]

In applying the abuse of discretion standard to the trial court’s determination of the prevailing party under the Act, we are mindful that we cannot substitute our decision for that of the trial court. Whether or not we agree with the court’s decision is immaterial. Since the determination that the Association is the prevailing party does not exceed the bounds of reason, it must be upheld on appeal.[6]

II
Costs Were Properly Awarded to the Association
The Perrottas claim they are entitled to costs pursuant to Code of Civil Procedure section 1032.

“Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.” (Code Civ. Proc., § 1032, subd. (b).) “`Prevailing party’ includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant. If any party recovers other than monetary relief and in situations other than as specified, the `prevailing party’ shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed, may apportion costs between the parties on the same or adverse sides pursuant to rules adopted under Section 1034.” (Id., subd. (a)(4).)

The Perrottas assert they are statutorily entitled to costs because the Association was denied relief on its complaint and the Perrottas were denied relief on their complaint, making them, as defendant to the action, the prevailing party. The Association obtained other than monetary relief here, a judgment that the Perrottas were bound to comply with the settlement agreement and must complete the landscaping of their property and obtain a final inspection within 56 days of the issuance of our remittitur. It was therefore within the trial court’s discretion to determine the prevailing party. As with the award of attorney fees, the implied finding that the Association was the prevailing party for the purposes of awarding costs was within the trial court’s sound discretion.

III
The Fees and Costs were Proper
The Perrottas’ final contention is the fees and costs should be lowered by $14,222.50. According to the Perrottas, pursuant to the anti-SLAPP motion, the association sought $19,222.50 in fees but was awarded only $5,000 by the trial court. This amount was not included in the awards of costs and fees reversed by this court in the first appeal. The Association did not seek the $5,000 it received for the anti-SLAPP motion in its motion for fees on remand, but on remand, sought an additional $14,222.50 in fees related to its work on the motion, which the trial court awarded. They contend the trial court was bound by the original award as the Association did not timely move for reconsideration of the original award pursuant to Code of Civil Procedure section 1008.

The Association asked for only $11,615 in fees associated with the anti-SLAPP motion in the original proceedings. The $14.222,50 amount asserted by the Perrottas on appeal is supported by a citation to the opposition to the Association’s motion for attorney fees they filed in the trial court on remand. That amount is determined by the Perrottas’ counsel by identifying entries in the billing records submitted by the Association that counsel believed were attributable to the anti-SLAPP motion.

Even assuming the Perrottas cite sufficient facts to support their claim, it was within the trial court’s authority to reconsider its earlier ruling on its own motion. A trial court retains jurisdiction to reconsider any final order. (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1103-1104.) A court may reconsider a prior ruling so long as it notifies the parties and allows briefing and argument on the issue. (Id. at p. 1008.) Whether and how much the Association’s fees should be reduced because of the $5,000 awarded for the anti-SLAPP litigation was before the trial court, the matter was briefed, and the court held a hearing on the issue of costs and fees. It was within the trial court’s discretion to conclude the Association was entitled to additional fees related to the anti-SLAPP motion, or that the fees disallowed in the original were fairly attributable to the remaining litigation.[7]

DISPOSITION
The judgment is affirmed. Respondent shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)

HULL, J. and MURRAY, J., concurs.

[1] Winchester Community Assn. v. Perrotta et al. (C075562, July 21, 2016) [nonpub. opn.].

[2] Undesignated statutory references are to the Civil Code.

[3] The trial court assumed, and the parties did not dispute, that the Perrottas were required to complete all construction, including landscaping, in order to obtain a “signed final inspection” from the county.

[4] Among the affirmative defenses raised by the Perrottas was that performance of their landscaping obligations was excused by the Association’s failure of performance and the Association’s actions also excused their duty to perform.

[5] At oral argument, there was a dispute between the parties as to whether the Perrottas breached the settlement agreement by failing to pay the $5,000 deposit. We do not address the dispute, as it is unnecessary to resolve this appeal.

[6] Since there is a separate statutory ground for fees and costs, it is unnecessary to consider the attorney fee provision for contract claims in section 1717. (Rancho Mirage, supra, 2 Cal.App.5th at p. 260.)

[7] This inference is supported by the fact that the anti-SLAPP motion obtained the dismissal of only four of the Perrottas’ seven cross-claims. It was within the court’s discretion that the $5,000 originally awarded was attributed to work associated with the dismissed claims, and the Association sought on remand fees related to work relevant to the claims not dismissed in the anti-SLAPP motion, but upon which the Association ultimately prevailed.

 

Champir LLC v. Fairbanks Ranch Association

Champir LLC v. Fairbanks Ranch Association
No. D077384, 2021 Cal. App. LEXIS 576 (Ct. App. June 22, 2021).

Court of Appeals of California, Fourth District, Division One

Filed June 22, 2021

No. D077384

Summary by Jillian M. Wright, Esq.:

Plaintiff owners sued an association over a dispute arising from the association’s plan to install traffic signals. The court issued a temporary restraining order and then a preliminary injunction blocking the project. The association then obtained consent from a majority of its members to proceed with the project, so the court dissolved the preliminary injunction. Both parties claimed they were the prevailing party in the lawsuit and sought their respective attorneys fees from the other. The court found the plaintiff owners to be the prevailing party and awarded the owners their fees and costs because their litigation was initiated to compel the association to comply with the CC&Rs, not to block the project.

TAKEAWAY: Determination of who is prevailing party requires ascertaining the parties litigation objective.

***End Summary***

CHAMPIR, LLC, et al., Plaintiffs and Respondents,
v.
FAIRBANKS RANCH ASSOCIATION, Defendant and Appellant.

APPEAL from a judgment of the Superior Court of San Diego County, Super. Ct. No. 37-2018-00028289-CU-NP-NC, Jacqueline M. Stern, Judge. Affirmed.

Gordon & Rees Scully Mansukhani, Thomas J. Stoddard and Casey Shaw for Defendant and Appellant.

Nicholas & Tomasevic, Craig M. Nicholas and Ethan T. Litney for Plaintiffs and Respondents.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

DO, J.

INTRODUCTION
Champir, LLC (Champir), Daniel Javaheri, and Shiva Dehghani (collectively, Plaintiffs) sued the Fairbanks Ranch Association (the Association) to enforce the recorded covenants, conditions, and restrictions (CC&Rs) of their planned development community. Upon resolution of the litigation, both parties sought an award of attorney fees and costs as the “prevailing party” under Civil Code section 5975, subdivision (c).[1] The court determined Plaintiffs were the prevailing party and entered judgment for Plaintiffs with an award of $112,340 in attorney fees, plus costs of suit. The Association appeals, asserting the court should have determined that it was the prevailing party in the litigation. We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND
I.
Plaintiffs’ Lawsuit
Champir owns a home in Fairbanks Ranch, a planned development community in Rancho Santa Fe, California, where Javaheri and his wife, Dehghani, reside. Javaheri is the manager and a member of Champir. The Association is a non-profit homeowners’ association that governs and oversees the common areas of Fairbanks Ranch pursuant to recorded CC&Rs. Champir is a member of the Association with voting rights under the CC&Rs.

In June 2018, Plaintiffs sued the Association over a dispute arising from the Association’s plan to install traffic signals at the entrance gates of Fairbanks Ranch, one of which would be directly outside Plaintiffs’ home.

Plaintiffs alleged that in May 2008 the Association obtained majority approval from its voting members to spend a little over $5.3 million for improvements to the common areas, including installation of traffic signals at two entrance gates to Fairbanks Ranch, Gates 1 and 6 (Gates Project). The Gates Project was to be funded with money received from the Association’s settlement of an unrelated lawsuit in 2000, totaling $3.2 million, and a special assessment against the properties in Fairbanks Ranch for the balance. In June 2017, the Association moved $390,470 of the funds approved for the Gates Project into another fund called the San Dieguito Road Safety Fund. The Association believed that amount represented funds from the 2000 settlement that may have been improperly designated for “`purposes outside the scope of the settlement fund.'”

In October 2017, the Association informed its members that it had obtained approval from the County Board of Supervisors for installation of traffic signals at Gates 2 and 6, rather than Gates 1 and 6, as originally approved by the members. Plaintiffs’ home is at the intersection of Gate 2, “directly next to the proposed traffic signal.” Plaintiffs claimed that this was the first time they learned of the Association’s intention to install a traffic signal at Gate 2. In a written notice, the Association told members that “`[t]he Board worked through the administrative process quietly to avoid the political hurdles [their] community encountered in past attempts to get speed control on San Dieguito Road. That is the reason [homeowner members] may not have been aware of this effort until now.’ “A month later, the Association informed its members that it was in the process of collecting bids and the traffic signals would be completed within six months.

Plaintiffs alleged the Association breached the CC&Rs and exceeded its authority in several ways. First, the Association failed to request a vote and obtain approval from its members before entering into a contract to install the traffic signals at Gates 2 and 6. Such a vote, according to Plaintiffs, was required by the CC&Rs for any capital expenditure that exceeded five percent of the Association’s annual budget for the year allocated, or $200,000 for the relevant time period. Here, the contracted price for the project was estimated to cost $430,000. Second, the Association improperly proposed to pay for the traffic signals at Gates 2 and 6 with money previously approved by members in 2008 for the Gates Project involving Gate 1, without a new vote authorizing a different use of previously allocated funds. Third, the Association planned to transfer operation and maintenance of the traffic signals after construction to the County of San Diego, which Plaintiffs alleged would be an improper transfer of Association funds to a third party, without a prior vote or majority approval.

Plaintiffs asserted five causes of action, including claims for breach of governing documents, trespass, nuisance, declaratory relief, and injunctive relief. Plaintiffs claimed the proposed traffic light at Gate 2 would encroach on their property and cause a nuisance as a result of “increased noise, traffic, pollution, and light.” In addition to monetary damages, Plaintiffs sought to enjoin the Association from construction of the traffic lights until a judicial determination of the rights and responsibilities of the parties.

II.
The TRO and Preliminary Injunction
On June 14, 2018, the trial court granted Plaintiffs’ ex parte application for a temporary restraining order (TRO) and enjoined the Association from construction of a traffic signal at Gate 2, pending a hearing on Plaintiffs’ motion for a preliminary injunction.

The Association filed a request to modify the TRO to enjoin it from construction of “any part of the Gate 2 traffic signal on Plaintiff[s’] property” only. It presented evidence of a professional land survey to show construction of the traffic signal would not encroach on Plaintiffs’ property. On June 21, 2018, the trial court modified the TRO to allow the project to proceed on “non-plaintiff land” but enjoined the Association from construction of any part of the traffic signal on Plaintiffs’ property.

On September 7, 2018, Plaintiffs filed a motion for a preliminary injunction against the Association, seeking to enjoin it from construction of the traffic signal at Gate 2 and further expenditure of funds for the traffic signal at Gate 2. On October 5, the court granted Plaintiffs’ motion in part and issued a preliminary injunction enjoining the Association from proceeding with construction of the traffic signal at Gate 2 during the pendency of the lawsuit. The court specifically found that “Plaintiffs have established a reasonable probability of success on the merits of their claim for breach of the Association’s governing documents and that Plaintiffs will suffer irreparable injury if the injunction is not issued.”

On November 20, 2018, the Association requested the court dissolve the preliminary injunction due to a “material change in the facts.” After the preliminary injunction was issued, the Association had requested a vote and obtained written consent from a majority of its members to proceed with construction of the traffic signal at Gate 2, even if expenditures exceeded 5 percent of its budgeted expenses for the year. The Association argued it would, therefore, be acting within its authority under the CC&Rs to install the traffic signal at Gate 2. On December 14, the court ordered the preliminary injunction dissolved, finding a material change in facts based on the Association’s evidence showing that it “recently obtained the written consent of a majority of the Association’s members to proceed with the installation of a traffic signal at Gate 2.” Accordingly, the court concluded “the evidence no longer support[ed] restraining the Association” from constructing the traffic signal at Gate 2.

III.
Prevailing Party Fee Award
After the preliminary injunction was dissolved, Plaintiffs voluntarily dismissed their causes of action for trespass and nuisance on May 1, 2019 and the remaining causes of action on September 17, 2019.[2] Plaintiffs and the Association then filed respective motions for attorney fees, each claiming to be the prevailing party under section 5975, subdivision (c). The Association also requested attorney fees pursuant to the CC&Rs, which provided that the Association would be entitled to reimbursement of its legal expenses if a member sued it and the Association was “`successful or sustained in its position in such suit.'”

On November 5, 2019, after a hearing, the trial court determined Plaintiffs, and not the Association, were the prevailing party. The court awarded Plaintiffs their attorney fees in the amount of $112,340 and denied the Association’s motion for attorney fees. On December 6, the court entered judgment for Plaintiffs. The Association appeals, asserting the trial court should have found that it was the prevailing party.

DISCUSSION
I.
“Prevailing Party” Under Section 5975
The Davis-Stirling Common Interest Development Act (Davis-Stirling Act or the Act) governs an action to enforce the recorded CC&Rs of a common interest development. (§§ 4000-6150 [formerly sections 1350-1376].) Section 5975 provides that CC&Rs may be enforced as equitable servitudes, unless unreasonable, and “[i]n an action to enforce the governing documents [of a common interest development], the prevailing party shall be awarded reasonable attorney[ ] fees and costs.” (§ 5975, subds. (a), (c).) The prevailing party is entitled to attorney fees “`as a matter of right'” and the trial court is “`obligated to award attorney fees[ ] whenever the statutory conditions have been satisfied.'” (Salehi v. Surfside III Condominium Owners Assn. (2011) 200 Cal.App.4th 1146, 1152 (Salehi) [construing former section 1354], quoting Hsu v. Abarra (1995) 9 Cal.4th 863, 872 (Hsu).)

The Act does not define “prevailing party.” However, it is well established that “[t]he analysis of who is a prevailing party under the fee-shifting provisions of the Act focuses on who prevailed `on a practical level’ by achieving its main litigation objectives[.]” (Rancho Mirage Country Club Homeowners Assn. v. Hazelbaker (2016) 2 Cal.App.5th 252, 260 (Rancho Mirage), citing Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568, 1574 (Heather Farms); Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 94 (Villa De Las Palmas) [affirming trial court’s determination that an association was the prevailing party because “[o]n a `practical level’ [citation], [it] `achieved its main litigation objective'”]; Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761, 773 (Almanor) [“[T]he test for prevailing party is a pragmatic one, namely whether a party prevailed on a practical level by achieving its main litigation objectives.”].)

II.
Standard of Review
On appeal, the Association’s sole contention is that the trial court “incorrectly concluded that the [Plaintiffs] were the prevailing parties in this action, and that [the Association] was not the prevailing party.”[3] It does not challenge the reasonableness of the fee amount.

We review the trial court’s determination of the prevailing party under the Davis-Stirling Act for abuse of discretion. (Villa De Las Palmas, supra, 33 Cal.4th at p. 94; Rancho Mirage, supra, 2 Cal.App.5th at p. 260; Almanor, supra, 246 Cal.App.4th at p. 774; Heather Farms, supra, 21 Cal.App.4th at p. 1574.) “`”`The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court.'”‘” (Rancho Mirage, supra, at pp. 260-261.)

The Association argues we should apply de novo review because the “determination of the legal basis for an attorney fee award is a question of law, reviewed de novo.”[4] We disagree. There is no dispute as to the “legal basis” for the court’s attorney fee award. Both parties sought an award of attorney fees as the prevailing party under section 5975, subdivision (c). On appeal, both parties agree section 5975, subdivision (c) provides the statutory basis for the prevailing party to recover attorney fees. The Association’s dispute is not with the legal basis for the trial court’s attorney fee award, but with the “factual underpinnings” of the court’s determination that Plaintiffs prevailed in this action.

III.
No Abuse of Discretion in Trial Court’s Determination of Prevailing Party
In determining the prevailing party under the Davis-Stirling Act, “the trial court should `compare the relief awarded on the [ ] 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 . . . by “a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.”‘” (Almanor, supra, 246 Cal.App.4th at p. 774, citing Hsu, supra, 9 Cal.4th at p. 876.)

The trial court engaged in that comparative analysis and determined that “Plaintiffs’ main objective in filing suit was to require the Association to comply with . . . [the CC&Rs] before proceeding with the installation of the traffic signal.” The court further found that Plaintiffs succeeded in their objective. By obtaining a TRO and a preliminary injunction, Plaintiffs compelled the Association to “immediately . . . obtain the written consent of its members” and were therefore “successful in their attempt to have the Association comply with the CC&Rs before installing the traffic signal.” Accordingly, the court determined Plaintiffs were the prevailing parties entitled to their reasonable attorney fees.

We will not disturb the trial court’s determination absent a clear showing of an abuse of discretion. (Villa De Las Palmas, supra, 33 Cal.4th at p. 94; Rancho Mirage, supra, 2 Cal.App.5th at p. 260; Almanor, supra, 246 Cal.App.4th at p. 774; Heather Farms, supra, 21 Cal.App.4th at p. 1574.) It is the Association’s burden to demonstrate the trial court abused its discretion by “`”`exceed[ing] the bounds of reason.'”‘” (Rancho Mirage, supra, at p. 260.) However, rather than presenting their appeal under the applicable standard of review, the Association continues to press their “respectful disagreement with the factual foundation” for the trial court’s conclusion “that the [P]laintiffs’ primary objective was met in this case.”

It argues the record does not support the trial court’s finding that Plaintiffs’ litigation objective was to obtain membership approval before installation of the traffic lights. It contends that “Plaintiffs’ own pleadings and motions in this case reveal that their singular goal in this litigation was to try to prevent the construction of a traffic signal next to their home.” It further contends “[t]he only remedy which Plaintiffs sought for Breach of Governing Documents was money.” Thus, the Association argues that since Plaintiffs failed to stop the construction of the traffic signal and failed to obtain any monetary relief, Plaintiffs were not the prevailing parties “as a matter of law.” We disagree.

First, the Association’s arguments ignore the governing standard of review. In deciding whether the trial court abused its discretion, we are bound by the substantial evidence rule. (Salehi, supra, 200 Cal.App.4th at p. 1154.) We presume the trial court’s judgment is correct, with “`”all intendments and presumptions . . . indulged to support the judgment[.]”‘” (Ibid.) “`”[T]he trial court’s resolution of any factual disputes arising from the evidence is conclusive.”‘” (Ibid.) “[W]e do not substitute our judgment for that of the trial court when more than one inference can be reasonably deduced from the facts.” (Almanor, supra, 246 Cal.App.4th at p. 776.)

Second, the record simply belies the Association’s contentions and demonstrates the trial court’s determination that Plaintiffs prevailed on a practical level was well within the bounds of reason. As set forth in the complaint, Plaintiffs’ primary cause of action was for breach of the governing documents, wherein they alleged the Association breached the CC&Rs and exceeded its authority in failing to request a vote and obtain majority approval from its members before taking actions to install the traffic lights, including the expenditure of Association funds. In seeking a TRO, Plaintiffs argued the Association had “completely ignored” and “disregarded” the CC&Rs and its actions should be enjoined until the rights and responsibilities of the parties under the CC&Rs could be judicially determined.

In seeking a preliminary injunction, Plaintiffs again made clear their objective: “[T]he Association approved . . . the construction of traffic signals at Gates 2 and 6 improperly because the Association did not seek a vote of the Members of the Association. [Plaintiffs’] ultimate goal in this Action is not to prevent the construction of the [traffic lights]. It is to compel the Association to submit this project to a vote of the Members and to let them decide. This authorizing procedure is required by the CC&Rs, Civil Code section 5605, . . . . If the Members decided to approve the project, Plaintiffs, as part of the Association, must live with that decision. Plaintiffs in this Motion [for a preliminary injunction] seek only to preserve the Status Quo until that vote can be had.” (Italics added.)

Further still, Plaintiffs asserted the burden of an injunction on the Association was “miniscule” because “it can simply hold a vote of the Members for the [installation of the traffic lights], vitiating an injunction.” (Italics added.) Promptly after the issuance of the preliminary injunction, the Association did just that. It put the matter to a vote and obtained majority approval from its members for the traffic lights and, on the basis of that material change in facts, the court granted the Association’s motion to dissolve the preliminary injunction. Only after the Association came into compliance with the CC&Rs did Plaintiffs voluntarily dismiss their entire action for mootness.

The Association argues, however, that Plaintiffs’ voluntary dismissal of the action, without any finding of liability against it, compels the conclusion that it is the prevailing party, as a matter of law. In support of this argument, the Association relies on the statutory definition of “prevailing party” under the general cost statute of Code of Civil Procedure section 1032, subdivision (a)(4), which provides that a “`[p]revailing party'” includes “a defendant in whose favor a dismissal is entered[.]” (Code. Civ. Proc. § 1032, subd. (a)(4).) But “the premise for this argument, that a litigant who prevails under the cost statute is necessarily the prevailing party for purposes of attorney fees, has been uniformly rejected by the courts of this state.” (Heather Farms, supra, 21 Cal.App.4th at p. 1572.) And as noted by the Heather Farms court, “Code of Civil Procedure section 1032, subdivision (a) only defines `”[p]revailing party”‘ as the term is used `in [that] section.’ It does not purport to define the term for purposes of other statutes.” (Ibid.) Moreover, elsewhere in its opening brief,[5] citing Heather Farms, the Association agrees the prevailing party under section 5975, subdivision (c), is determined by the pragmatic test of identifying “which party has prevailed on a `practical level.'”

The Association also relies on Coltrain v. Shewalter (1998) 66 Cal.App.4th 94 (Coltrain) to argue Plaintiffs’ voluntary dismissal of the action makes it the prevailing party. But Coltrain does not help advance the Association’s argument. There, the trial court awarded attorney fees to defendants as “a prevailing defendant” under Code of Civil Procedure, section 425.16, subdivision (c), the fee-shifting provision of the anti-SLAPP statute. (Coltrain, supra, at p. 100.) Although concluding the trial court erroneously applied the standard under Code of Civil Procedure section 1032, subdivision (a)(4), the Court of Appeal affirmed the fee award. (Id. at p. 107.) In doing so, the Court of Appeal held that “where the plaintiff voluntarily dismisses an alleged SLAPP suit while a special motion to strike is pending, the trial court has discretion to determine whether the defendant is the prevailing party for purposes of attorney[ ] fees under Code of Civil Procedure section 425.16, subdivision (c). In making that determination, the critical issue is which party realized its objectives in the litigation.” (Ibid., italics added.)

The Coltrain court rejected “defendants’ contention that a voluntary dismissal while a special motion to strike is pending should automatically entitle a defendant to attorney’s fees.” (Coltrain, supra, 66 Cal.App.4th at p. 107.) Rather, the court noted that “regardless of whether the action is a SLAPP suit or not, the plaintiff may have good faith reasons for the dismissal that have nothing to do with oppressing the defendant or avoiding liability for attorney’s fees.” (Ibid.) The Coltrain court also reiterated what the California Supreme Court has previously said on this subject: “`In particular, it seems inaccurate to characterize the defendant as the “prevailing party” if the plaintiff dismissed the action only after obtaining, by means of settlement or otherwise, all or most of the requested relief, or if the plaintiff dismissed for reasons, such as the defendant’s insolvency, that have nothing to do with the probability of success on the merits.'” (Coltrain, supra, 66 Cal.App.4th at p. 103, quoting Santisas v. Goodin (1998) 17 Cal.4th 599, 621-622.)

Here, the trial court acknowledged that “Plaintiffs eventually dismissed their claims without prejudice” and concluded “such conduct does not deprive them of prevailing party status.” It is a reasonable conclusion, from the litigation history, that Plaintiffs voluntarily dismissed the action because the Association’s capitulation after issuance of the preliminary injunction had mooted their action. The court did not find and nothing in the record suggests, as the Association argues, that “[r]ather than face trial, Plaintiffs dismissed” their claims.

The Association’s reliance on Salehi, supra, 200 Cal.App.4th 1146 is similarly unhelpful. In Salehi, the plaintiff dismissed without prejudice eight of ten causes of action against her condominium association on the eve of trial because her construction expert suddenly became unavailable. (Id. at pp. 1151-1152.) The plaintiff obtained a continuance of trial on the remaining two causes of action for negligent misrepresentation and fraud, believing she would not need the expert to prove those claims. (Ibid.) Before the trial date, the association moved for attorney fees as the prevailing party on the eight dismissed causes of action. (Id. at pp. 1152-1153.) The Court of Appeal reversed the trial court’s order denying the fee award. (Id. at pp. 1155, 1162.) In doing so, the Court of Appeal concluded that “[t]he record does not suggest that [plaintiff] would have prevailed on the merits. It does not appear that she was ready to go forward procedurally and prove the case substantively.” (Id. at p. 1155.) Here, unlike Salehi, the trial court specifically found “Plaintiffs have established a reasonable probability of success on the merits of their claim for breach of the Association’s governing documents” when it issued the preliminary injunction enjoining the Association from proceeding with construction of the traffic signal at Gate 2 during the pendency of the lawsuit.

Third, the Association’s focus on Plaintiffs’ prayer for relief to argue the true intent of Plaintiffs’ action was to prevent a traffic light from being installed, not enforcement of the governing documents, is misplaced. In determining litigation success, the court respects substance rather than form. (Rancho Mirage, supra, 2 Cal.App.5th at p. 260 [“We see nothing in the Davis-Stirling Act that suggests we should give more weight to the form of a complaint . . . than to the substance of the claims asserted and relief sought, in determining whether an action is one `to enforce the governing documents’ in the meaning of section 5975.”].) A prayer is not part of a cause of action. (Berg v. Investors Real Estate Loan Co. (1962) 207 Cal.App.2d 808, 815 [“It is elementary that the prayer is no part of the statement of the cause of action [citations] and that the issues involved are determinable from the facts alleged rather than from the prayer.”].)

Moreover, while preventing the installation of the traffic light “might have been a litigation `dream'” for Plaintiffs (Ritter & Ritter, Inc. Pension & Profit Plan v. The Churchill Condominium Assn. (2008) 166 Cal.App.4th 103, 127), it does not undercut their main litigation objective of requiring the Association to comply with the CC&Rs and obtain majority approval from its members before installing the traffic light. (See ibid. [Plaintiff homeowners were determined to be prevailing party despite not achieving “litigation `dream'” of obtaining correction of building defect where they succeeded in compelling membership vote. “The fact that the membership did not vote to correct this defect in the building does not mean that the [plaintiffs] failed on their main litigation objective.”].)

In sum, we conclude the trial court’s determination that Plaintiffs prevailed on a practical level was supported by substantial evidence and well within the bounds of reason. The Association has failed to demonstrate any abuse of discretion in the court’s award of attorney fees to Plaintiffs and denial of attorney fees to it under section 5975, subdivision (c).

IV.
Association’s Remaining Arguments
A. Any Claim of Error as to Inclusion of Javaheri and Dehghani in the Fee Award Is Forfeited
The Association argues the trial court erred in awarding attorney fees to Javaheri and Dehghani because they “are not the owners of the property” and therefore have “no right to enforce the CC&Rs.” As such, the Association argues, Javaheri and Dehghani “cannot be `prevailing parties’ in an action to enforce the governing documents of the Fairbanks Ranch Association.”

In support of this claim of error, the Association dedicates two short paragraphs in their opening brief, cites to no legal authorities whatsoever for their contentions, and provides unhelpful record citations. The record citations merely refer this court back to the Association’s Memorandum of Points and Authorities in Opposition to Plaintiffs’ Notice of Motion for Attorneys’ Fees and Costs, to pages which contain almost verbatim the same two short paragraphs as in their opening brief, and to a Notice of Lodgment which indicates the Fairbanks Ranch CC&Rs were at some point lodged as an exhibit with the trial court. Having not seen the CC&Rs, we do not know what the governing documents provide.

The Association also fails to provide any discussion of how the inclusion of Javaheri and Dehghani in the fee award resulted in prejudice.[6] Indeed, it does not even challenge the reasonableness of the fee amount.

“To prevail on appeal, an appellant must establish both error and prejudice from that error. [Citation.] In order to demonstrate error, an appellant must supply the reviewing court with some cogent argument supported by legal analysis and citation to the record. Rather than scour the record unguided, we may decide that the appellant has forfeited a point urged on appeal when it is not supported by accurate citations to the record. [Citations.] Similarly, we may disregard conclusory arguments that are not supported by pertinent legal authority.” (WFG National Title Ins. Co. v. Wells Fargo Bank, N.A. (2020) 51 Cal.App.5th 881, 894 (WFG).)

Simply put, the reviewing court is not required to develop the Association’s arguments or search the record for supporting evidence. For these reasons, we conclude the Association has forfeited the claim of any prejudicial error as it relates to the inclusion of Javaheri and Dehghani in the fee award. (WFG, supra, 51 Cal.App.5th at p. 894.)

B. Section 1717 Does Not Provide the Association with Any Basis for Recovering Attorney Fees Pursuant to the CC&Rs
In addition to section 5975, subdivision (c), the Association also sought an award of attorney fees pursuant to the CC&Rs, which provides the Association would be entitled to reimbursement of its legal expenses if a member sued it and the Association was “`successful or sustained in its position in such suit.’ “Although not raised in the trial court or in its opening brief, the Association argues in its reply brief that its “claim in this case that it is the prevailing party is based upon a contractual right to attorneys’ fees pursuant to Civil Code section 1717[.]” Although we do not consider arguments raised for the first time in a reply brief absent good cause (see footnote 3 ante), we quickly dispose of the Association’s argument.

Section 1717 provides that “[i]n any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, . . . shall be entitled to reasonable attorney’s fees in addition to other costs.” (§ 1717, subd. (a).) Section 1717, subdivision (b)(2) creates an exception to the recovery of attorney fees under this statute, and states that “[w]here an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section.” (§ 1717, subd. (b)(2).) That exception codifies the holding in International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, in which the Supreme Court “determined that a defendant could not recover attorney fees under section 1717 when the plaintiff voluntarily dismissed the action before trial.” (Hsu, supra, 9 Cal.4th at pp. 872-873.)

Thus, notwithstanding the trial court’s determination that the Association was not the prevailing party, and we find no abuse in that determination, the Association may not recover attorney fees under section 1717, subdivision (b)(2), since Plaintiffs voluntarily dismissed their lawsuit.

DISPOSITION
The judgment is affirmed. Plaintiffs are entitled to their costs on appeal.

McCONNELL, P. J. and DATO, J., concurs.

[1] All further undesignated statutory references are to the Civil Code, unless specified otherwise.

[2] Plaintiffs had previously moved on May 14, 2019 for an order dismissing the entire action “for mootness” and a determination that they were the “prevailing party” entitled to attorney fees. The court denied Plaintiffs’ motion because it was not persuaded the statute cited by Plaintiffs authorized dismissal and stated Plaintiffs may seek dismissal of their remaining claims under Code of Civil Procedure section 581, subdivision (b). The court also denied Plaintiffs’ request for a determination of prevailing party as premature because judgment had not been entered.

[3] The Association raises, for the first time in its reply brief, that the trial court abused its discretion by granting Plaintiffs’ motion for preliminary injunction. “Normally, a contention may not be raised for the first time in a reply brief.” (People v. Peevy (1998) 17 Cal.4th 1184, 1206; accord People v. Silveria and Travis (2020) 10 Cal.5th 195, 255 [“`”[i]t is axiomatic that arguments made for the first time in a reply brief will not be entertained because of the unfairness to the other party”‘”].) We do not consider arguments raised for the first time in the reply brief without a showing of good cause, which the Association did not make. (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894, fn. 10.)

[4] The Association cites to Conservatorship of Whitley (2010) 50 Cal.4th 1206 (Whitley) and Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169 (Connerly) to argue for de novo review. These cases are inapposite because they involved “`”the determination of whether the criteria for an award of attorney fees and costs . . . have been satisfied amounts to statutory construction and a question of law.”‘” (Whitley, at pp. 1213-1214, italics added [addressing whether a litigant’s nonpecuniary interests can disqualify him from eligibility for attorney fees under Code of Civil Procedure section 1021.5], quoting Connerly, at p. 1175 [determining whether the California Business Council can be assessed attorney fees under section 1021.5 as an “`opposing part[y]’ within the meaning of that statute”].) There is no issue of statutory construction here.

[5] On March 16, 2021, the Association filed a Notice of Errata regarding its opening brief, indicating that it “inadvertently listed incorrect citations to the record” and filed with the notice, a “corrected copy of Appellant’s Opening Brief” which “corrects such citation errors and makes no other changes other than to the form of the citations to the record.” On March 18, 2021, we issued notice that the Association’s Notice of Errata will be treated as a motion for leave to file an amended appellant’s opening brief and will be considered concurrently with the appeal. We hereby grant the Association’s unopposed motion for leave to file an amended opening brief.

[6] When the Association raised this standing argument at the hearing on attorney fees, Plaintiffs’ counsel argued “all litigation efforts in this case are consolidated . . . there’s [no] reasonable way to chop up the plaintiffs in this case.” The trial judge asked the Association, the work for all plaintiffs are “all intertwined, though, aren’t they?” Despite these questions being raised below, the Association does not address them on appeal.

 

Issakhani v. Shadow Glen Homeowners Association, Inc.

Issakhani v. Shadow Glen Homeowners Association, Inc.

(2021) 63 Cal.App.5th 917.

Court of Appeals of California, Second District, Division Two

April 30, 2021

No. B301746

Summary by Jillian M. Wright, Esq.:

A pedestrian jaywalked across a five-lane highway at night and was struck by a car. The pedestrian sued the association she was trying to visit for negligence and premises liability for having too few onsite parking spaces for guests. This appeal therefore presents the question: Does a landowner owe a duty of care to invitees to provide adequate onsite parking, either (1) under common law principles, or (2) by virtue of a 1978 city ordinance that rezoned the complex’s specific parcel for multifamily dwellings and conditioned that rezoning on providing a specific number of guest parking spaces? The court concluded that the answer to both questions is “no.”

TAKEAWAY: Associations do not have a duty to provide onsite guest parking for invitees. Even if a city ordinance or statute requires an association to establish a certain number of guest parking spaces, the association is not liable for any harm that results from its lack of guest parking.

***End Summary***

63 Cal.App.5th 917 (2021)

278 Cal. Rptr. 3d 270

ANAEIS ISSAKHANI, Plaintiff and Appellant,
v.
SHADOW GLEN HOMEOWNERS ASSOCIATION, INC., Defendant and Respondent.

APPEAL from a judgment of the Superior Court of Los Angeles County, Super. Ct. No. BC623438, Melvin D. Sandvig, Judge. Affirmed.

Gusdorff Law, Janet Gusdorff; Aghabegian & Associates and Alan Aghabegian, for Plaintiff and Appellant.

Horvitz & Levy, Daniel J. Gonzalez and Mitchell C. Tilner, for Defendant and Respondent.

922*922 OPINION
HOFFSTADT, J.—

A pedestrian who decided to jaywalk across a five-lane highway at night was struck by a car. The pedestrian sued the owner of the condominium complex she was trying to visit for negligence and premises liability for having too few onsite parking spaces for guests. This appeal therefore presents the question: Does a landowner owe a duty of care to invitees to provide adequate onsite parking, either (1) under common law principles, or (2) by virtue of a 1978 city ordinance that rezoned the complex’s specific parcel for multifamily dwellings and conditioned that rezoning on providing a specific number of guest parking spaces? We conclude that the answer to both questions is “no.” We accordingly affirm the trial court’s grant of summary judgment to the condominium complex.

FACTS AND PROCEDURAL BACKGROUND
I. Facts
After nightfall on June 10, 2014, Anaeis Issakhani (plaintiff) parked her car on the far side of a five-lane street. Rather than walk to the next marked crosswalk several hundred feet away, she jaywalked. She was struck by a car, and sustained a traumatic brain injury along with several skull fractures.

At the time she was struck, plaintiff was crossing the street to get to the Shadow Glen condominium complex where her friend lived. The complex has 170 onsite parking spaces, and they are marked as “Reserved” for residents or as “Visitor” for guests. Before parking on the street, plaintiff had tried to find a parking space onsite; specifically, she followed another car through the complex’s security gate and then drove around for two or three minutes before deciding there was no available space.

The Shadow Glen complex was built in 1979 as a 68-unit housing development in Sun Valley, California. Because the parcel was originally zoned for single and dual family housing, the complex’s original developer applied to the City of Los Angeles (the City) to have the parcel rezoned as a multiple dwelling zone. As required by the City’s municipal code, the developer’s application was considered by the City’s planning department, by a hearing examiner, by the City’s planning commission, and ultimately by the Los Angeles City Council (City Council). Because the City’s zoning map is set forth in a City ordinance, a City Council-enacted ordinance is required to rezone a parcel.

923*923 In enacting ordinance No. 151,411, the City Council granted the developer’s application on five conditions[1] that the City deemed “necessary to protect the best interests of and assure a development more compatible with the surrounding neighborhood”—namely, that (1) “[n]o building located on the site … exceed two stories or 25 feet in height,” (2) “[a]ll open areas not used for buildings, driveways, parking areas, recreational facilities, or walks … be attractively landscaped” and “equipped with automatic sprinklers,” (3) “[a] 10-foot landscaped buffer setback … be provided along [the five-lane street],” and populated with trees of a specified height and at a specified density, (4) “[a]ll lighting … be directed onto the site … to eliminate any glare to adjoining residential properties,” and (5) “guest parking” be “provide[d]” “at a ratio of one-half space per dwelling unit in excess” of that otherwise required by the municipal code. Because the complex was to have 68 units, ordinance No. 151,411 requires 34 “guest parking” spaces.

After construction was completed, the City issued a certificate of occupancy that reflected 170 parking spaces, which was 13 spaces more than required by the municipal code and ordinance No. 151,411.

By the time of the accident, the complex still had 170 parking spaces but only six of them were marked as “Visitor” spaces.

II. Procedural History
On June 10, 2016, plaintiff sued the Shadow Glen Homeowners Association, Inc. (the Association), which is the current owner of the Shadow Glen complex. In the operative, second amended complaint, plaintiff asserts claims for negligence and premises liability. Both claims rest on the premise that the Association’s failure to maintain the number of guest parking spaces mandated by ordinance No. 151,411 “created a foreseeable risk of harm for the Condominium’s guests.”

The Association moved for summary judgment. Following briefing and a hearing, the trial court granted summary judgment on the grounds that the Association owed plaintiff no duty under the common law or under ordinance No. 151,411.[2]

Following the entry of judgment, plaintiff filed this timely appeal.

924*924 DISCUSSION
Plaintiff argues that the trial court erred in granting summary judgment for the Association. A defendant is entitled to summary judgment if it can “show that there is no triable issue as to any material fact.” (Code Civ. Proc., § 437c, subd. (c).)[3] The defendant bears the initial burden of establishing that the plaintiff’s cause of action has “no merit” by showing that the plaintiff cannot establish “[o]ne or more elements of [her] cause of action.” (Code Civ. Proc., § 437c, subds. (o) & (p)(2).) If this burden is met, the “burden shifts” to the plaintiff “to show that a triable issue of one or more material facts exists as to that cause of action….” (Id., subd. (p)(2); see Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 849 [107 Cal.Rptr.2d 841, 24 P.3d 493].)

Plaintiff’s claims for negligence and premises liability have the same elements—namely, (1) “a legal duty of care,” (2) “breach of that duty,” and (3) “proximate cause resulting in injury.” (Kesner v. Superior Court (2016) 1 Cal.5th 1132, 1158 [210 Cal.Rptr.3d 283, 384 P.3d 283] (Kesner).) Thus, if the Association does not owe plaintiff a duty of care, it is entitled to summary judgment.

We independently decide whether summary judgment is appropriate and whether a duty of care exists. (Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248, 273 [219 Cal.Rptr.3d 859, 397 P.3d 210] [summary judgment]; Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 57 [77 Cal.Rptr.2d 709, 960 P.2d 513] [duty of care].) We accordingly owe no deference to the trial court’s rulings or reasoning. (Burgueno v. Regents of University of California (2015) 243 Cal.App.4th 1052, 1057 [197 Cal.Rptr.3d 44].)

I. Analysis of Duty of Care
A duty of care exists when one person has a legal obligation to prevent harm to another person, such that breach of that obligation can give rise to liability. (Brown v. USA Taekwondo (2021) 11 Cal.5th 204, 209 [___ Cal.Rptr.3d ___, 483 P.3d 159] (Brown); Paz v. State of California (2000) 22 Cal.4th 550, 559 [93 Cal.Rptr.2d 703, 994 P.2d 975] (Paz); Coffee v. McDonnell-Douglas Corp. (1972) 8 Cal.3d 551, 559, fn. 8 [105 Cal.Rptr. 358, 503 P.2d 1366]; Annocki v. Peterson Enterprises, LLC (2014) 232 Cal.App.4th 32, 37 [180 Cal.Rptr.3d 474] (Annocki).) Whether a duty of care exists is not a matter of plucking some immutable truth from the ether; instead, the 925*925 existence of a particular duty of care reflects a determination that the “`”sum total”‘” of “`”considerations of [public] policy [should] lead the law to say that the particular plaintiff is entitled to protection.”‘” (Paz, at p. 559; see Cabral v. Ralphs Grocery Co. (2011) 51 Cal.4th 764, 771 [122 Cal.Rptr.3d 313, 248 P.3d 1170] (Cabral); Scott v. Chevron U.S.A. (1992) 5 Cal.App.4th 510, 515 [6 Cal.Rptr.2d 810].)

In determining whether public policy warrants the creation of a duty of care, courts can look to the public policy (1) found in the common law (California Service Station etc. v. American Home Assurance Co. (1998) 62 Cal.App.4th 1166, 1175 [73 Cal.Rptr.2d 182] (California Service Station) [“The courts have always had the responsibility to define negligence duties….”]), and (2) embodied in statutes, regulations, and the like. (Vesely v. Sager (1971) 5 Cal.3d 153, 164 [95 Cal.Rptr. 623, 486 P.2d 151] (Vesely) [“A duty of care … may … be found in a legislative enactment”], overruled on other grounds as stated in Ennabe v. Manosa (2014) 58 Cal.4th 697, 707 [168 Cal.Rptr.3d 440, 319 P.3d 201]; J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 803 [157 Cal.Rptr. 407, 598 P.2d 60] [“A duty of care may arise through statute …”].)

A. Common law-based duty
An owner of land has a common law duty “to maintain land in [its] possession and control in a reasonably safe condition” “as to avoid exposing others to an unreasonable risk of injury.” (See Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 674 [25 Cal.Rptr.2d 137, 863 P.2d 207], overruled on other grounds as stated in Reid v. Google, Inc. (2010) 50 Cal.4th 512, 527 [113 Cal.Rptr.3d 327, 235 P.3d 988]; Barnes v. Black (1999) 71 Cal.App.4th 1473, 1478 [84 Cal.Rptr.2d 634] (Barnes); Alcaraz v. Vece (1997) 14 Cal.4th 1149, 1156 [60 Cal.Rptr.2d 448, 929 P.2d 1239]; see generally Civ. Code, § 1714, subd. (a) [codifying this common law duty].) Because plaintiff alleges that she was struck by a car in the street due to the Association’s failure to provide enough onsite parking for guests, the question in this case becomes: Does the landowner’s common law duty of care entail protecting an invitee against injuries incurred offsite due to an alleged deficiency on the landowner’s property?[4]

926*926 It certainly can. The landowner’s “`duty of care encompasses a duty to avoid exposing persons to risks of injury that occur off site if the landowner’s property is maintained in such a manner as to expose persons to an unreasonable risk of injury offsite.'” (Kesner, supra, 1 Cal.5th at p. 1159, quoting Barnes, supra, 71 Cal.App.4th at p. 1478, italics added; see McDaniel v. Sunset Manor Co. (1990) 220 Cal.App.3d 1, 7 [269 Cal.Rptr. 196] (McDaniel) [“The fact that the injuries occurred on the adjacent property does not automatically bar recovery”].) But whether it should in a specific circumstance turns on the considerations articulated by our Supreme Court in Rowland v. Christian (1968) 69 Cal.2d 108, 113 [70 Cal.Rptr. 97, 443 P.2d 561] (Rowland), partially superseded by statute on other grounds as stated in Smith v. Freund (2011) 192 Cal.App.4th 466, 473, fn. 5 [121 Cal.Rptr.3d 427]. (Barnes, at p. 1479 [“The Rowland factors determine the scope of a duty of care whether the risk of harm is situated on site or off site”]; cf. Brown, supra, 11 Cal.5th at p. 217 [Rowland factors “not designed as a freestanding means of establishing duty” in a specific circumstance where, unlike here, there is no underlying duty running between the parties that might apply].)

We conclude that a landowner’s common law duty of care does not encompass a duty to provide onsite parking for invitees in order to protect them from traffic accidents occurring offsite as they travel to the premises, and we do so for two reasons: (1) such a duty is foreclosed by precedent, and (2) even if not foreclosed, the so-called Rowland factors counsel against such a duty.

1. Precedent
In Vasilenko v. Grace Family Church (2017) 3 Cal.5th 1077 [224 Cal.Rptr.3d 846, 404 P.3d 1196] (Vasilenko), our Supreme Court held that “a landowner who does no more than site and maintain [an offsite] parking lot that requires invitees to cross a public street to reach the landowner’s premises does not owe a duty to protect those invitees from the obvious dangers of the public street.” (Id. at p. 1092; see id., at p. 1097.)

Vasilenko forecloses imposing a duty upon a landowner to provide invitees with onsite parking in order to protect them from the dangers of crossing nearby streets to get to the property. If, as plaintiff contends, a landowner had a duty to provide onsite parking to invitees, the landowner in Vasilenko would have automatically breached that duty when it directed its invitees to offsite parking facilities; there would have accordingly been no reason for Vasilenko to examine whether, under the Rowland factors, a landowner had a duty to safely shepherd those invitees onto its property from those facilities. In other words, the only reason Vasilenko exists is because a landowner owes no duty to provide onsite parking to invitees. Vasilenko even made this explicit: 927*927 “[L]andowners are not required to provide parking for their invitees.” (Vasilenko, supra, 3 Cal.5th at p. 1090.)

What is more, Vasilenko is merely the most recent in a longer line of cases that have consistently refused to impose a duty upon landowners to provide onsite parking to protect their invitees from the dangers of crossing nearby streets to access the property. In McGarvey v. Pacific Gas & Electric Co. (1971) 18 Cal.App.3d 555 [95 Cal.Rptr. 894] (McGarvey), the plaintiff was injured when one of the defendant’s employees was making a U-turn on an adjacent street, a maneuver necessitated by the absence of any onsite parking for employees. McGarvey rejected the plaintiff’s argument that the defendant had “a duty … to provide … adequate [onsite] automobile parking facilities for all employees” and “customers.” (Id. at pp. 558, 562.) In Seaber v. Hotel Del Coronado (1991) 1 Cal.App.4th 481 [2 Cal.Rptr.2d 405] (Seaber), the plaintiff was killed in a crosswalk as he traveled from a hotel’s offsite parking lot to the hotel, a task necessitated by the absence of any onsite guest parking. Seaber rejected plaintiff’s argument that the hotel was liable for plaintiff’s death, a holding that would make no sense if the hotel had a precursor duty to provide onsite parking for its guests. (Id. at pp. 484-485, 492-493.)

Although a landowner’s duty of care encompasses a more specific duty not to maintain conditions on its property that exacerbate the dangers of invitees entering or exiting the property (Swanberg v. O’Mectin (1984) 157 Cal.App.3d 325, 330 [203 Cal.Rptr. 701] [obstructing shrubbery makes exiting the property more dangerous]; Annocki, supra, 232 Cal.App.4th at pp. 38-39 [layout of onsite parking lot encourages invitees to make a dangerous left turn when exiting the property]; Constantinescu v. Conejo Valley Unified School Dist. (1993) 16 Cal.App.4th 1466, 1473-1474 [20 Cal.Rptr.2d 734] [layout of onsite parking lot creates “`snarl-ups'” and congestion that make nearby streets more dangerous (italics omitted)]), McDaniel, Seaber and Vasilenko necessarily reject the notion that the absence of onsite parking by itself amounts to a “condition” on the property that exacerbates the offsite danger to invitees and gives rise to an actionable duty.

2. Analysis of the Rowland factors
The so-called Rowland factors fall into two broad categories— namely, (1) foreseeability-related factors, and (2) other “public policy factors.” (Cabral, supra, 51 Cal.4th at pp. 774, 781.) There are three foreseeability-related factors; they are (1) “the foreseeability of harm to the plaintiff,” (2) “the degree of certainty that the plaintiff suffered injury,” and (3) “the closeness of the connection between the defendant’s conduct and the injury suffered.” (Rowland, supra, 69 Cal.2d at p. 113; see Cabral, at p. 774.) 928*928 In assessing these foreseeability-related factors, the focus is general rather than specific: We are to ask whether the “kind of harm experienced” is “generally” foreseeable from the “category of negligent conduct at issue” rather than “whether a particular plaintiff’s injury was reasonably foreseeable in light of a particular defendant’s conduct.” (Ballard v. Uribe (1986) 41 Cal.3d 564, 572, fn. 6 [224 Cal.Rptr. 664, 715 P.2d 624].) There are four public policy factors; they are (1) “the policy of preventing future harm,” (2) “the moral blame attached to the defendant’s conduct,” (3) “the extent of the burden to the defendant and [the] consequences to the community of imposing a duty to exercise care with resulting liability for breach,” and (4) “the availability, cost, and prevalence of insurance for the risk involved.” (Rowland, at p. 113; see Cabral, at p. 781.)

The foreseeability-related factors counsel against imposing a duty upon landowners to provide onsite parking to avoid injury to invitees as they travel from offsite parking locales. To be sure, as in Vasilenko, the first two foreseeability factors favor imposing a duty to provide onsite parking. That is because it is “foreseeable that an invitee” forced to park offsite due to the lack of sufficient onsite parking—like the invitee in Vasilenko who was “directed to park in an overflow lot on the other side of a public street”— “might be struck by oncoming traffic while crossing the street” and because the plaintiffs in both cases certainly suffered injury when struck by cars. (Vasilenko, supra, 3 Cal.5th at p. 1085.) However, also as in Vasilenko and as plaintiff concedes, the third foreseeability factor counsels strongly against imposing a duty. That is because the “connection between the [landowner-]defendant’s conduct and the injury suffered” is “attenuated” rather than “close.” (Id., at pp. 1083, 1086.) If, as in Vasilenko, the connection was too attenuated because the invitee’s injury was most directly the product of his “decision as to when, where, and how to cross” the street as well as the driver’s “ability to see and react to crossing pedestrians” (id., at p. 1086), the connection is even more attenuated in this case, where it was the visitor’s decision—rather than the landowner’s—to select an offsite parking space on the far side of a busy street.

The public policy factors also counsel against imposing a duty upon landowners to provide onsite parking to avoid injury to invitees as they travel from offsite parking locales. Imposing a duty to provide sufficient onsite parking to accommodate all invitees would not be especially effective in preventing future harm. Most commercial and residential properties actively used by people consist of structures along with a finite number of parking spaces. Short of requiring landowners to bulldoze structures or excavate and build underground structures to create more parking spaces, imposing a duty upon landowners to set aside enough parking spaces for all invitees is likely to do nothing more than shift the identity of who is forced to park offsite— instead of invitees, it may instead be residents and employees who have to 929*929 park offsite. But shifting the identity of who has to park offsite would not do much to prevent future harm in the aggregate. Conversely, the persons best suited to prevent future harm from street-crossing accidents, Vasilenko noted, are the “drivers[] and invitees themselves.” (Vasilenko, supra, 3 Cal.5th at p. 1090.) Because there are few “reasonable ameliorative steps” available to landowners to create more parking spaces, landowners are not “particularly blameworthy” for failing to take them. (Id. at p. 1091.) Imposing a duty to provide sufficient onsite parking for all invitees would also impose an unacceptably heavy burden, as every business and every multifamily residential dwelling complex would be required to provide parking for every guest, or else face liability for damages incurred when those guests cannot find onsite parking and are injured when trying to access the property from offsite. If, as in Vasilenko, requiring landowners “to continuously monitor the dangerousness of the abutting street and other streets in the area,” “to relocate their [offsite] parking lots as conditions change,” and potentially “to hire employees to assist invitees with crossing the street” was considered a “significant burden[]” (id. at p. 1090), the burden imposed by the proffered duty here—that is, reconfiguring the property to accommodate parking for every guest or face liability for all accidents arising from their offsite parking—is massive. (See McGarvey, supra, 18 Cal.App.3d at p. 562 [noting similarly unachievable burden].) Indeed, it is this type of “`”potentially infinite liability”‘” that “`the concept of duty'” is designed to “`limit.'” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 397 [11 Cal.Rptr.2d 51, 834 P.2d 745].) Lastly, because insurance could be available to the landowner, the invitee, and the driver, the insurance factor is neutral in the analysis. (Accord, Vasilenko, at p. 1091.)

Thus, even if Vasilenko’s analysis of the Rowland factors did not dictate a finding of new duty, our own independent analysis of those factors counsels that finding.

B. Statute-based duty
A duty of care can also be grounded in—and hence “borrowed” from—the public policy embodied in a legislatively enacted statute or ordinance. (Elsner v. Uveges (2004) 34 Cal.4th 915, 927 & fn. 8 [22 Cal.Rptr.3d 530, 102 P.3d 915] (Elsner); see Vesely, supra, 5 Cal.3d at p. 164.)

Plaintiff argues that the Association owes her a duty of care by virtue of the guest parking conditions set forth in ordinance No. 151,411. We reject this argument for two reasons: (1) ordinance No. 151,411 is a parcel-specific ordinance adopted as the final step of a multistep administrative procedure and is therefore incapable of forming the basis for a duty of care, and (2) the 930*930 guest parking condition of ordinance No. 151,411 was aimed at preserving the aesthetic character of the surrounding neighborhood, and not at protecting invitees from traffic accidents.

1. Ordinance No. 151,411 is a special ordinance incapable of forming the basis for a duty of care
Not all legislative enactments—that is, not all statutes and ordinances —are capable of forming the basis for a duty of care giving rise to a negligence claim.

Legislative enactments sometimes embody and implement “a `broad, generally applicable rule of conduct on the basis of general public policy.'” (Horn v. County of Ventura (1979) 24 Cal.3d 605, 613 [156 Cal.Rptr. 718, 596 P.2d 1134] (Horn), quoting San Diego Building Contractors Assn. v. City Council of San Diego (1974) 13 Cal.3d 205, 212-213 [118 Cal.Rptr. 146, 529 P.2d 570].) When they do, they set forth the same type of “fundamental policy decisions” that are capable of forming the basis for a duty of care. (California Service Station, supra, 62 Cal.App.4th at p. 1176 [“The creation of a negligence duty of care involves fundamental policy decisions”].)

Other times, however, legislative enactments embody no fundamental policy decision. One such instance is where, as here, the enactment applies to a single parcel of property.[5]

There is no question that the City Council’s rezoning the Shadow Glen parcel was “a legislative act” because it was effectuated by means of an ordinance amending the City’s municipal code. (Arnel Development Co. v. City of Costa Mesa (1980) 28 Cal.3d 511, 516 [169 Cal.Rptr. 904, 620 P.2d 565]; Johnston v. Claremont (1958) 49 Cal.2d 826, 835 [323 P.2d 71], overruled on other grounds as stated in Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 596 [135 Cal.Rptr. 41, 557 P.2d 473]; Mountain Defense League v. Board of Supervisors (1977) 65 Cal.App.3d 723, 728 [135 Cal.Rptr. 588]; Federation of Hillside & Canyon Assns. v. City of Los Angeles (2004) 126 Cal.App.4th 1180, 1195 [24 Cal.Rptr.3d 543].) But that act embodied no generally applicable, fundamental public policy. Instead, 931*931 ordinance No. 151,411 was a parcel-specific enactment that served as the culmination of a process of an internal, parcel-specific administrative review. The original developer of the Shadow Glen complex filed an application to rezone its parcel of property (and only its parcel of property), and that application proceeded through several levels of administrative review by City officials until the City Council, as the final level of that review, approved the developer’s rezoning application. Although the City Council’s mechanism for doing so was through enacting ordinance No. 151,411, that was necessary because the City’s zoning map was set forth in an ordinance (at the time, L.A. Mun. Code, § 12.04) and thus could be modified only through another ordinance. However, the mechanism of enacting an ordinance did not alter the fundamental character of the City Council’s act as embodying merely a parcel-specific policy that was tied to the “`facts peculiar to the individual case.'” (See Horn, supra, 24 Cal.3d at p. 613; Anaheim Redevelopment Agency v. Dusek (1987) 193 Cal.App.3d 249, 258 [239 Cal.Rptr. 319].)

Because ordinance No. 151,411 embodies no “general public policy,” it cannot be used as a fulcrum to create a duty of care.

2. Ordinance No. 151,411 was not designed to protect invitees against injuries suffered from parking offsite
Even if a statute or ordinance is designed to embody and effectuate fundamental public policy by setting forth a generally applicable rule of conduct, it can give rise to a duty of care actionable in negligence only if (1) the plaintiff invoking the statute is “`a member of the class of persons the statute [or ordinance] … was designed to protect,'” and (2) the “`harm'” the plaintiff suffered was “`one the statute [or ordinance] … was designed to prevent.'” (Ramirez v. Nelson (2008) 44 Cal.4th 908, 918 [80 Cal.Rptr.3d 728, 188 P.3d 659], quoting Stafford, supra, 33 Cal.3d at p. 324; see Nunneley v. Edgar Hotel (1950) 36 Cal.2d 493, 497-498 [225 P.2d 497] (Nunneley); Keech v. Berkeley Unified School Dist. (1984) 162 Cal.App.3d 464, 469 [210 Cal.Rptr. 7] (Keech).) Whether a statute or ordinance satisfies these requirements is a question of law. (Jacobs Farm/Del Cabo, Inc. v. Western Farm Service, Inc. (2010) 190 Cal.App.4th 1502, 1526 [119 Cal.Rptr.3d 529].)

Ordinance No. 151,411 satisfies neither of these prerequisites.

In assessing whom an ordinance was designed to protect and the harm it was designed to prevent, we apply the usual canons of statutory construction. (1300 N. Curson Investors, LLC v. Drumea (2014) 225 Cal.App.4th 325, 332 [170 Cal.Rptr.3d 173] [“The canons of statutory construction apply to local ordinances”].) We start with the text of the ordinance, and read that text “`”in the context of the statute … as a 932*932 whole.”‘” (People v. Valencia (2017) 3 Cal.5th 347, 358 [220 Cal.Rptr.3d 230, 397 P.3d 936], quoting Professional Engineers in California Government v. Kempton (2007) 40 Cal.4th 1016, 1037 [56 Cal.Rptr.3d 814, 155 P.3d 226]; see California Charter Schools Assn. v. Los Angeles Unified School Dist. (2015) 60 Cal.4th 1221, 1237 [185 Cal.Rptr.3d 556, 345 P.3d 911].) If the text does not provide a clear answer, we may also look to other “`extrinsic sources'” such as the ordinance’s legislative history. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 531 [117 Cal.Rptr.2d 220, 41 P.3d 46].)

The condition in ordinance No. 151,411 that, as part of granting the developer’s rezoning request, required the developer to provide an additional 34 “guest parking” spaces was one of five such conditions. As noted above, the other conditions required the builder not to exceed a specified building height, to “attractively landscape” the complex’s “open areas,” to landscape a buffer setback on the main street outside the complex, and to point all lighting inward. The City specifically found that all five conditions were “necessary to protect the best interests of and assure a development more compatible with the surrounding neighborhood.” Indeed, the City’s municipal code defined a condition to rezoning—that is, a “Q classification”—as a condition “deemed necessary to protect the best interests of and assure a development more compatible with the surrounding property or neighborhood or to secure an appropriate development in harmony with the objectives of the General Plan.” As the plain text of the conditions themselves, the finding that justified them, and the codified definition of a rezoning condition all make clear, these conditions in ordinance No. 151,411—including the guest parking condition that would avoid overcrowded curbsides—were designed to preserve the residential character and aesthetics of the surrounding neighborhood. Indeed, the entire purpose of ordinance No. 151,411 was to rezone the complex’s parcel, and the chief purposes of most zoning laws are to “maint[ain] … the character of residential neighborhoods” and “`”advance aesthetic values.”‘” (Ewing v. City of Carmel-by-the-Sea (1991) 234 Cal.App.3d 1579, 1590 [286 Cal.Rptr. 382]; Echevarrieta v. City of Rancho Palos Verdes (2001) 86 Cal.App.4th 472, 478 [103 Cal.Rptr.2d 165].) What is more, the penalty for noncompliance with ordinance No. 151,411’s conditions is the imposition of administrative fines (L.A. Mun. Code, §§ 12.29, 11.2.01, 11.2.03, 11.2.04), a remedy that reinforces the notion that the developer’s duty was to the City (Selger, supra, 222 Cal.App.3d at p. 1591 [so holding]). As a result, ordinance No. 151,411 was designed to protect “the community at large” from the harm of deleterious aesthetics and degradation of the surrounding neighborhood. (Accord, Nunneley, supra, 36 Cal.2d at p. 497 [no duty where statute was “`intended to protect the interests of the … 933*933 community at large, rather than those of any particular class of individuals'”].) Nothing in ordinance No. 151,411 or its legislative history evinces any intent to protect invitees from traffic accidents that occur when they park offsite.

Plaintiff responds with three arguments.

First, she cites the section of the City’s municipal code introducing the “purpose” of the City’s zoning provisions. Among the seven general purposes of those code provisions is “to promote health, safety, and the general welfare.” (Italics added.) However, that all zoning activities by the City might be designed to further “promote … safety” in the general sense is irrelevant. What matters is whether the class of plaintiffs and the harm are “of the precise nature [the] statute [or ordinance at issue] was designed [to protect and] to prevent,” respectively (Bologna v. City & County of San Francisco (2011) 192 Cal.App.4th 429, 435 [121 Cal.Rptr.3d 406]; see Keech, supra, 162 Cal.App.3d at p. 469), not whether the “[city]wide scheme” for zoning “has an overall purpose of promoting … safety” (Capolungo v. Bondi (1986) 179 Cal.App.3d 346, 352 [224 Cal.Rptr. 326] (Capolungo)).

Second, plaintiff contends that the guest parking condition would have the inevitable effect of “lessening congestion on the streets” and obviating some of the need for offsite parking, and thus must have been designed in part to protect guests from the harm of traffic accidents. However, the fact that an ordinance not designed to protect the class of persons of which plaintiff is a part and not designed to protect against the harm she suffered might have a secondary effect or design to protect that class against that harm is not enough to create a duty of care. (See Capolungo, supra, 179 Cal.App.3d at pp. 351-352 [ordinance that prohibits motorists from parking in yellow curb loading zones for more than 24 minutes designed to facilitate loading and unloading, not to prevent traffic accidents; no duty]; Gilmer v. Ellington (2008) 159 Cal.App.4th 190, 203-204 [70 Cal.Rptr.3d 893] [statute prohibiting grid-locking of intersections designed to encourage free flow of traffic, not to protect against traffic accidents; no duty]; Lua v. Southern Pacific Transportation Co. (1992) 6 Cal.App.4th 1897, 1902-1903 [9 Cal.Rptr.2d 116] [regulation specifying when trains can block roadways designed to facilitate free flow of traffic, not to prevent accidents; no duty]; Selger, supra, 222 Cal.App.3d at pp. 1590-1591 [ordinance requiring property owners to keep abutting sidewalks clean designed to assist city in those duties, not to protect passersby from injury; no duty]; Urhausen v. Longs Drug Stores California, Inc. (2007) 155 Cal.App.4th 254, 269-270 [65 Cal.Rptr.3d 838] (Urhausen) [regulations governing the slope of parking spaces for disabled persons designed to enable access parking in those spaces, not to protect persons walking across those spaces on foot with crutches; no duty]; Victor v. 934*934 Hedges (1999) 77 Cal.App.4th 229, 234-238 [91 Cal.Rptr.2d 466] [statute prohibiting parking vehicles on sidewalks designed to prevent obstruction of sidewalks and injuries to pedestrians forced to walk around the “obstructing vehicle,” not to protect pedestrians on the sidewalk from being struck by vehicles not illegally parked; no duty]; Wawanesa Mutual Ins. Co. v. Matlock (1997) 60 Cal.App.4th 583, 587 [70 Cal.Rptr.2d 512] [statute that prohibits furnishing tobacco to minors designed to prevent addiction, not to prevent fires; no duty]; cf. Thomson v. Bayless (1944) 24 Cal.2d 543, 546 [150 P.2d 413] [ordinance prohibiting parking on highway when parking elsewhere is practicable “designed to protect persons traveling on the highway”; duty].)

Lastly, plaintiff cites the testimony of an expert that the “purpose” of ordinance No. 151,411’s guest parking condition was to “promote[] public safety” and to “reduce” the number of vehicles “park[ed] on the street.” However, the meaning and purpose of a legislative enactment is a question of law for the court; an expert’s opinion on such matters is an inadmissible legal conclusion. (Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1179 [78 Cal.Rptr.3d 572] [expert opinion on meaning of statute “[ir]relevant” because statutory interpretation is for the court].) We therefore disregard it.

II. Plaintiff’s Further Arguments
Plaintiff assails our conclusion with several assertions that boil down to two arguments.

First, plaintiff argues that the Association engaged in active misfeasance because it reduced the number of available guest parking spaces from 34 to 6, and thereby engaged in affirmative misconduct that violated ordinance No. 151,411.

This argument is without merit for several reasons.

To begin, it conflates a duty of care with the standard of care. Although a statute or ordinance can give rise to a duty of care and simultaneously fix the standard of care (Elsner, supra, 34 Cal.4th at p. 927, fn. 8; Vesely, supra, 5 Cal.3d at p. 164; Johnson v. Honeywell Internat. Inc. (2009) 179 Cal.App.4th 549, 558 [101 Cal.Rptr.3d 726]), the two concepts are “analytical[ly] distinct[]” (California Service Station, supra, 62 Cal.App.4th at p. 1178). The duty of care establishes whether one person has a legal obligation to prevent harm to another (Paz, supra, 22 Cal.4th at p. 559), while the standard of care defines what that person must do to meet that obligation and thus sets the standard for assessing whether there has been a breach (Webster v. Claremont Yoga (2018) 26 Cal.App.5th 284, 288 [236 Cal.Rptr.3d 802]). The default standard of care is the obligation to take 935*935 “reasonable care” (Lopez, supra, 55 Cal.App.5th at p. 250; Flowers v. Torrance Memorial Hospital Medical Center (1994) 8 Cal.4th 992, 999 [35 Cal.Rptr.2d 685, 884 P.2d 142] (Flowers); see Ramirez v. Plough, Inc. (1993) 6 Cal.4th 539, 546 [25 Cal.Rptr.2d 97, 863 P.2d 167] (Ramirez), although a statute may define a more specific obligation (Ramirez, at p. 547; Flowers, at p. 997, fn. 2) and, under the doctrine of negligence per se, may erect a rebuttable presumption of breach if that obligation is not met (Evid. Code, § 669, subd. (a); California Service Station, at p. 1177; see also Sierra-Bay Fed. Land Bank Assn. v. Superior Court (1991) 227 Cal.App.3d 318, 333-334 [277 Cal.Rptr. 753] [“Nearly all the cases in which the presumption of negligence under Evidence Code section 669 has been applied involve what may be termed `safety’ statutes, ordinances or regulations, that is, governmentally designed standards of care intended to protect a particular class of persons from the risk of particular accidental injuries”]). The standard of care is relevant only if there is a duty of care for it to impose. The standard of care presupposes a duty; it cannot create one. (See Urhausen, supra, 155 Cal.App.4th at p. 270 [“a regulation will not be found to have … intended to prevent a particular accident merely because compliance with the regulation would foreseeably have prevented the accident”].) Yet that is what plaintiff invites us to do—to infer a duty of care from the fact that, if a duty of care otherwise existed, 34 guest parking spaces would set the standard of care. Because this puts the cart before the horse, we must decline plaintiff’s invitation.

Further, plaintiff’s invocation of the doctrine of misfeasance is of no aid. “Misfeasance exists when [a] defendant,” through its “affirmative actions,” “is responsible for making the plaintiff’s position worse” by “creat[ing] a risk of harm to the plaintiff.” (Weirum v. RKO General, Inc. (1975) 15 Cal.3d 40, 49 [123 Cal.Rptr. 468, 539 P.2d 36] (Weirum); Minch v. Department of California Highway Patrol (2006) 140 Cal.App.4th 895, 908 [44 Cal.Rptr.3d 846]; Romero v. Superior Court (2001) 89 Cal.App.4th 1068, 1079 [107 Cal.Rptr.2d 801].) “Liability for misfeasance is based on the general duty of ordinary care to prevent others from being injured by one’s conduct.” (Seo v. All-Makes Overhead Doors (2002) 97 Cal.App.4th 1193, 1202 [119 Cal.Rptr.2d 160]; see Weirum, at p. 49.) Thus, if a defendant has no duty of care under the general principles set forth above and does not otherwise undertake acts that prompt the plaintiff to be less careful (e.g., McDaniel, supra, 220 Cal.App.3d at pp. 9-10), its misfeasance is not actionable. As explained above, the Association owes plaintiff no duty of care under the general principles of the law of negligence and there was no evidence that plaintiff was less careful in crossing the street because the complex had fewer onsite parking spaces than required by ordinance No. 151,411.

Lastly, accepting plaintiff’s misfeasance-based argument creates perverse incentives inimical to tort law. If, as plaintiff suggests, the Association 936*936 commits actionable misfeasance by reducing the number of guest parking spaces from 34 to six—but engages in nonactionable nonfeasance if it never reserved 34 spaces in the first place—landowners, by virtue of tort law, would have every incentive to offer no guest parking. Yet the net effect of offering no guest parking is to make more people park offsite and thereby risk injury in traffic accidents.

Second, plaintiff argues that even if ordinance No. 151,411 does not by itself give rise to a duty of care, we should rebalance the Rowland factors through the prism of the ordinance’s requirement to have 34 guest parking spaces. We reject this argument. This argument once again commits the sin of conflating a standard of care with a duty of care. It also lacks the support of precedent and logic. Although a statute that does not support an evidentiary presumption of breach of the standard of care may still be considered when fixing the standard of care (e.g., Powell v. Pacific Electric Railway Co. (1950) 35 Cal.2d 40, 46 [216 P.2d 448]), plaintiff cites no precedent where a court in weighing the Rowland factors has considered a statute that does not by itself give rise to a duty. This is hardly a surprise, at least where, as here, one of the reasons the statute does not give rise to a duty of care is because it is not designed to protect the plaintiff against the harm at issue. Such a statute is, by dint of those reasons, irrelevant to the analysis dictated by the Rowland factors and thus should not influence them.

* * *
Because we have concluded that summary judgment is appropriate because the Association owes plaintiff no duty of care as a matter of law, we have no occasion to address the parties’ further arguments regarding the existence or nonexistence of proximate causation.

DISPOSITION
The judgment is affirmed. The Association is entitled to its costs on appeal.

Ashmann-Gerst, Acting P. J., and Chavez, J., concurred.

[1] In the lingo used in the zoning provisions of the City’s municipal code, these conditions are called “`Q’ Qualified classifications.”

[2] The trial court’s subsequent order stated that summary judgment was also granted on the ground that plaintiff could not prove causation.

[3] All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

[4] This case therefore presents a different question than cases examining whether a landowner’s duty of care extends to deficiencies located on property adjacent to—but not on—the landowner’s property. (E.g., Lopez v. City of Los Angeles (2020) 55 Cal.App.5th 244, 256 [269 Cal.Rptr.3d 377] (Lopez) [defect on abutting public sidewalk]; Selger v. Steven Brothers, Inc. (1990) 222 Cal.App.3d 1585, 1588 [272 Cal.Rptr. 544] (Selger) [same]; Schaefer v. Lenahan (1944) 63 Cal.App.2d 324, 325-326 [146 P.2d 929] [same]; Williams v. Foster (1989) 216 Cal.App.3d 510, 515 [265 Cal.Rptr. 15] [same].)

[5] If a duty of care otherwise exists, a special ordinance that regulates a specific person or parcel can set the standard of care used to evaluate whether that independently existing duty has been breached. (Simoneau v. Pacific Electric Ry. Co. (1913) 166 Cal. 264, 269-270 [136 P. 544] [special ordinance granting defendant a franchise on condition that it operate its streetcars at no more than eight miles per hour can be used to assess whether defendant breached its existing duty of care when operating at faster speeds]; accord, Stafford v. United Farm Workers (1983) 33 Cal.3d 319, 324 [188 Cal.Rptr. 600, 656 P.2d 564] (Stafford) [injunction may be used to define standard of care].)

 

Schrage v. Schrage

Schrage v. Schrage

No. B298119, 2021 Cal. App. LEXIS 780 (Ct. App. Sep. 2, 2021).

Court of Appeals of California, Second District, Division Seven.

September 2, 2021

No. B298119

Summary by Jillian M. Wright, Esq.:

A plaintiff shareholder sued to dissolve several LLCs and close corporations. The court held the shareholder lacked standing to bring a cause of action for breach of fiduciary duty because the shareholder did not allege a derivative cause of action on behalf of the corporation.

TAKEAWAY: An individual corporate shareholder may not bring an action for indirect personal losses (that is, devaluation of his interest in the entity) sustained as a result of overall harm to the corporate entity. It is the corporate entity that must bring suit. If the corporate entity refuses to do so after an appropriate demand to do so from a shareholder, the shareholder may bring a suit to recover damage to the corporation (a “derivative action”) but the recovery in such case belongs to the corporation, not to the shareholder.

***End Summary***

69 Cal.App.5th 126 (2021)

LEONARD SCHRAGE, Plaintiff and Respondent,
v.
MICHAEL SCHRAGE et al., Defendants and Appellants.

APPEAL from orders and a judgment of the Superior Court of Los Angeles County, Super. Ct. No. BC579623, Yvette M. Palazuelos and Daniel J. Buckley, Judges. Affirmed as modified in part and reversed in part.

Randall S. Waier for Defendants and Appellants.

Manatt, Phelps & Phillips, Benjamin G. Shatz, Kishan H. Barot; Markun Zusman Freniere Compton and Steven M. Goldberg for Plaintiff and Respondent.

131*131 OPINION
SEGAL, J.—

INTRODUCTION
Michael and Joseph Schrage appeal from the judgment and several orders entered in an action filed by their brother, Leonard Schrage, for involuntary dissolution of the family business and breach of fiduciary duty. After Michael and Joseph invoked their statutory right under the Corporations Code to buy Leonard’s interests in the business pursuant to a court-ordered appraisal, the 132*132 parties stipulated to add five limited liability companies to the eight limited liability companies, five corporations, and one limited partnership that were already subject to the appraisal and buyout proceeding. The trial court confirmed a valuation of Leonard’s interests determined by appraisers and a court-appointed referee. The court also issued an alternative decree ordering that Michael and Joseph had to pay the appraised amount by a certain date and that, if they did not, the entities would be wound up and dissolved. Michael and Joseph appealed from that order, but voluntarily dismissed the appeal. They did not pay the buyout amount, and the court proceeded to wind up and dissolve the family business, including the five additional limited liability companies.

Meanwhile, Leonard proceeded on his cause of action for breach of fiduciary duty against Michael and Joseph. Following a court trial, the court found in favor of Leonard on that cause of action, awarded Leonard compensatory and punitive damages, and entered judgment in favor of Leonard and against Michael and Joseph. The court also denied various postjudgment motions.

Michael and Joseph argue the alternative decree to wind up and dissolve the family business and the “follow-up judgments and orders” are void as a matter of law because the trial court lacked jurisdiction to dissolve the five limited liability companies the parties stipulated to include in the appraisal and buyout proceeding. We reject this argument because the trial court had fundamental jurisdiction and Michael and Joseph are estopped from collaterally attacking the alternative decree. Michael and Joseph also argue Leonard lacked standing to assert his cause of action for breach of fiduciary duty. We agree with this argument because Leonard’s cause of action was derivative, not individual. Therefore, we affirm the order of dissolution (with a modification), reverse the award of damages for breach of fiduciary duty, and dismiss the appeals from nonappealable orders.

FACTUAL AND PROCEDURAL BACKGROUND
A. Leonard Sues His Brothers To Dissolve the Family Business and for Breach of Fiduciary Duty
We pick up with the story in this (the parties’ third) appeal where we left off following Michael and Joseph’s appeal from an order awarding Leonard fees and expenses he incurred in a court-ordered appraisal under Corporations Code section 1800.[1] (See Schrage v. Schrage (Aug. 19, 2020, B288478) [nonpub. opn.] (Schrage I); see also Schrage v. Schrage (May 14, 2021, 133*133 B307539) [nonpub. opn.] (Schrage II).) But first we repeat some of the basic facts of the case summarized in Schrage I.

Leonard, Michael, and Joseph each owned a one-third interest in the Sage Automotive Group, a family-owned car dealership business founded by their father. In April 2015 Leonard filed this action against Michael, Joseph, and 14 corporate entities in the Sage Automotive Group to dissolve and wind up those entities. Leonard alleged Michael and Joseph engaged in a pattern of self-dealing and mismanaged the business by, among other things, misappropriating company assets to fund a separately owned car dealership and to pay for lavish personal expenses, making business decisions without Leonard’s consent, and denying Leonard access to corporate books and records. Leonard sought to dissolve five corporations under section 1800, eight limited liability companies under section 17707.03, and one limited partnership under section 15908.02. Leonard also sought compensatory and punitive damages against Michael and Joseph for breach of fiduciary duty. (Schrage I, supra, B288478.)

In June 2016 Michael and Joseph filed a motion under sections 2000, 15908.02, and 17707.03 (collectively, the buyout statutes) to stay the dissolution causes of action and determine the value of Leonard’s interest in the entity defendants. On August 23, 2016 the trial court stayed Leonard’s three dissolution causes of action (one for each legal form of business entity) to allow Michael and Joseph to proceed on their election to purchase Leonard’s interests in the business. The court did not stay Leonard’s breach of fiduciary duty cause of action or Michael and Joseph’s causes of action in their cross-complaint for breach of fiduciary duty, conversion, and recording confidential communications in violation of Penal Code sections 630 and 632. (Schrage I, supra, B288478.) The trial court also denied Michael and Joseph’s motion for judgment on the pleadings on Leonard’s cause of action for breach of fiduciary duty, ruling Leonard had alleged an individual cause of action against his brothers, not a derivative cause of action on behalf of the entities in the Sage Automotive Group.

On September 19, 2016 the parties entered into a stipulation, approved by the court, to appoint Retired Judge Louis M. Meisinger as the referee to oversee and adjudicate all aspects of the appraisal process, including selecting the appraisers, determining the buyout price, and setting a deadline for Michael and Joseph to pay the buyout price. The order stated that “Judge Meisinger’s determinations in this regard will be final, and all parties expressly waive any right to contest, challenge, or object to such rulings ….”

The parties entered into another stipulated order on January 5, 2017 to govern the appraisal and buyout proceeding. That order provided, among 134*134 other things, the appraisal and buyout process would include the 14 entity defendants named in the first amended complaint, plus five additional limited liability companies (collectively, the buyout entities). The five limited liability companies that were not named defendants in any of the three causes of action for involuntary dissolution, but that were subject to the appraisal and buyout process by stipulation, were UCNP 3, UCNP 4, UCNP 5, UCNP 6, and UCNP 8 (collectively, the UCNP entities). To allow the appraisers to value each entity, the order required the parties to give the appraisers a variety of information, including organizational agreements, historical and projected financial data, and real estate holdings. The stipulation provided that, after the appraisers submitted their written reports to the parties and Judge Meisinger, the parties would meet and confer to try to reach agreement on the valuation assigned to each entity and the overall value of Leonard’s one-third interest in the buyout entities, “which shall constitute the buy-out price to be paid by Michael and Joseph to Leonard.” If the parties were unable to agree on a buyout price, Judge Meisinger would set the price following a hearing.

On July 25, 2017, following a contested appraisal process, Judge Meisinger submitted a recommendation and proposed order confirming the value of Leonard’s interests in the buyout entities was $40,237,000 and stating that, if Michael and Joseph did not pay Leonard that amount by September 11, 2017, the buyout entities (including the UCNP entities) would be wound up and dissolved. Judge Meisinger’s recommendation also stated that, under the September 19, 2016 stipulation and order, his findings were “`final’ and `all parties expressly waive any right to contest, challenge, or object to such rulings before'” the court. On July 28, 2017 the trial court approved the referee’s recommendation and entered it as the court’s order and alternative decree.

Michael and Joseph did not pay Leonard by September 11, 2017, but they did file a notice of appeal from the July 28, 2017 order and alternative decree. Michael and Joseph subsequently filed requests to dismiss that appeal, and on May 31, 2018 this court granted those requests and dismissed the appeal.[2] Meanwhile, on September 27, 2017 the trial court appointed a receiver to wind up and dissolve the buyout entities. In Schrage I we modified and affirmed an order granting Leonard’s motion for attorneys’ fees and other expenses incurred in the appraisal process and in obtaining certain injunctive relief during that process. (Schrage I, supra, B288478.)

135*135 B. The Trial Court Enters a Net Judgment of Approximately $31 Million in Favor of Leonard and Against Michael and Joseph
A bifurcated court trial began in April 2018 on Leonard’s cause of action for breach of fiduciary duty and on Michael and Joseph’s cross-complaint. Following almost two months of testimony, the court on October 12, 2018 issued a tentative decision finding Michael and Joseph breached their fiduciary duties to Leonard, awarding Leonard compensatory damages offset by an amount for Leonard’s unclean hands, finding Michael and Joseph acted with malice, oppression, and fraud, and ruling against Michael and Joseph on their cross-complaint. The court began the punitive damages phase of the trial on November 26, 2018.

On March 12, 2019 the court entered judgment in favor of Leonard and against Michael and Joseph in the amount of approximately $31 million. The judgment consisted of $962,903.13 on the first, second, and third causes of action for involuntary dissolution,[3] $24,418,473 in compensatory damages on Leonard’s cause of action for breach of fiduciary duty offset by $3,506,412 for Leonard’s unclean hands, and punitive damages of $5 million against Michael and $5 million against Joseph.

Michael and Joseph filed motions to vacate and amend the judgment and for a new trial. Michael and Joseph argued the trial court lacked subject matter jurisdiction and personal jurisdiction over the UCNP entities for the July 28, 2017 alternative decree and the September 27, 2017 order appointing a receiver to wind up and dissolve the buyout entities, which made those orders void as a matter of law; the “one judgment rule” and claim preclusion (which they referred to as res judicata) barred Leonard’s cause of action for breach of fiduciary duty because the appraisal and buyout process should have included the value of that cause of action; the trial court erred in awarding compensatory and punitive damages on Leonard’s cause of action for breach of fiduciary duty; and Michael and Joseph’s affirmative defense of unclean hands precluded any recovery by Leonard on his cause of action for breach of fiduciary duty.

The trial judge was unavailable to hear Michael’s and Joseph’s postjudgment motions, and another judge heard them. Following a hearing, the court 136*136 denied the motions, and Michael and Joseph timely appealed from the judgment and the postjudgment orders.[4]

DISCUSSION
Michael and Joseph argue the alternative decree and subsequent orders and judgment are void as a matter of law because the trial court lacked jurisdiction to order the appraisal and dissolution of the UCNP entities; Leonard lacked standing to assert his cause of action for breach of fiduciary duty because his claims were derivative, not individual; the trial court exceeded its jurisdiction by failing in the appraisal and buyout process to assess the economic impact of the cause of action for breach of fiduciary duty; the election of remedies doctrine, the “one judgment rule,” and claim preclusion barred Leonard’s cause of action for breach of fiduciary duty; the trial court erred in awarding compensatory and punitive damages for Leonard’s cause of action for breach of fiduciary duty; and Michael and Joseph’s affirmative defense of unclean hands precluded any recovery by Leonard for his cause of action for breach of fiduciary duty. We conclude the standing argument has merit, the jurisdictional argument does not, and we do not reach the other issues.

A. The Buyout Statutes
As we explained in Schrage I, the “statutory buyout provisions of the Corporations Code provide a defendant in an involuntary dissolution action with a mechanism for avoiding dissolution by purchasing the plaintiff’s shares or other interests. [Citations.] Section 2000, subdivision (a), which applies to corporations, states that, `[i]n any suit for involuntary dissolution,… the corporation or, if it does not elect to purchase, the holders of 50 percent or more of the voting power of the corporation (the “purchasing parties”) may avoid the dissolution of the corporation and the appointment of any receiver by purchasing for cash the shares owned by the plaintiffs or by the shareholders so initiating the proceeding (the “moving parties”) at their fair value.’ If the parties are unable to agree on the fair value of the shares, and the purchasing parties post a bond with sufficient security to pay the moving parties’ estimated reasonable expenses, `the court upon application of the purchasing parties … shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair value of the shares owned by the moving parties.'” (Schrage I, supra, B288478.)

“Section 2000, subdivision (c), prescribes the procedure for determining the fair value of the shares and the relief available to the moving parties if the 137*137 shares are not purchased. That provision states in relevant part: `The court shall appoint three disinterested appraisers to appraise the fair value of the shares owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining the value…. The award of the appraisers or of a majority of them, when confirmed by the court, shall be final and conclusive upon all parties. The court shall enter a decree, which shall provide in the alternative for winding up and dissolution of the corporation unless payment is made for the shares within the time specified by the decree.’ Sections 17707.03 and 15908.02 contain substantively identical buyout provisions for limited liability companies and limited partnerships, respectively.” (Schrage I, supra, B288478.)

“The statutory buyout procedure is `a special proceeding’ that, `once initiated, “supplants” a cause of action for involuntary dissolution.’ [Citations.] `In such a proceeding, [the] purchasing parties aspire to buy out the moving party, with minimal expenditure of time and money that would otherwise be spent in litigation, in order to preserve the corporation. If they … cannot pay the purchase price, or decide not to do so, then both sides must walk away, receiving pro rata the proceeds resulting from dissolution of the corporation. On the other hand, if the purchasing parties tender the amount determined by the court, the moving party cannot reject the share price as being too low.’ [Citation.] The buyout procedure `does not determine whether the corporation should be dissolved, but instead, provides the plaintiff and defendant with a statutory remedy without [a] trial’ on the merits.” (Schrage I, supra, B288478; see Ontiveros v. Constable (2018) 27 Cal.App.5th 259, 277 [237 Cal.Rptr.3d 892] [“A value of the corporation’s stock is determined and then the defendant has a period by which it is to pay the plaintiff for its stock. If the defendant does not do so, a judicial decree will dissolve the corporation.”].)

B. Michael and Joseph Cannot Collaterally Attack the Alternative Decree
Michael and Joseph contend the alternative decree and “confirming judgments and orders” are void and unenforceable because the trial court lacked subject matter jurisdiction to order the appraisal and buyout of the five UCNP entities.[5] The alternative decree, however, was an appealable order. (See § 2000, subd. (c); Cotton v. Expo Power Systems, Inc. (2009) 170 Cal.App.4th 1371, 1376 [89 Cal.Rptr.3d 112]; Dickson v. Rehmke (2008) 164 Cal.App.4th 469, 476 [78 Cal.Rptr.3d 874].) Michael and Joseph had an 138*138 opportunity to challenge that order in their appeal from the alternative decree, but they dismissed the appeal, making that order final. (See Code Civ. Proc., § 913; Estate of Sapp (2019) 36 Cal.App.5th 86, 100 [248 Cal.Rptr.3d 244]; Patchett v. Bergamot Station, Ltd. (2006) 143 Cal.App.4th 1390, 1396 [49 Cal.Rptr.3d 941]; Schrage I, supra, B288478.) Nevertheless, Michael and Joseph can challenge it in this appeal if it is a void order, because a party may collaterally attack a void judgment or order at any time. (Falahati v. Kondo (2005) 127 Cal.App.4th 823, 830, fn. 9 [26 Cal.Rptr.3d 104]; accord, Deutsche Bank National Trust Co. v. Pyle (2017) 13 Cal.App.5th 513, 526-527 [220 Cal.Rptr.3d 691]; see Code Civ. Proc., § 473, subd. (d) [“[t]he court … may, on motion of either party after notice to the other party, set aside any void judgment or order”].)

A judgment or order that is not void but “merely” voidable, however, is generally not subject to collateral attack. (See People v. American Contractors Indemnity Co. (2004) 33 Cal.4th 653, 661 [16 Cal.Rptr.3d 76, 93 P.3d 1020] (American Contractors); Adoption of Myah M. (2011) 201 Cal.App.4th 1518, 1531 [135 Cal.Rptr.3d 636].) “When a court has fundamental jurisdiction, but acts in excess of its jurisdiction, its act or judgment is merely voidable. [Citations.] That is, its act or judgment is valid until it is set aside, and a party may be precluded from setting it aside by `principles of estoppel, disfavor of collateral attack or res judicata.’ [Citation.] Errors which are merely in excess of jurisdiction should be challenged directly, for example by motion to vacate the judgment, or on appeal, and are generally not subject to collateral attack once the judgment is final unless `unusual circumstances were present which prevented an earlier and more appropriate attack.'” (American Contractors, at p. 661; see Adoption of Myah M., at p. 1531 [“A claim that does not concern the trial court’s fundamental subject matter jurisdiction is waived if not timely asserted.”].) We review de novo the trial court’s ruling that neither the alternative decree nor the judgment is void for lack of subject matter jurisdiction. (See Mack v. All Counties Trustee Services, Inc. (2018) 26 Cal.App.5th 935, 940 [237 Cal.Rptr.3d 568]; Talley v. Valuation Counselors Group, Inc. (2010) 191 Cal.App.4th 132, 146 [119 Cal.Rptr.3d 300].)

1. Michael and Joseph Cannot Collaterally Attack the Alternative Decree as a Void Order Because the Trial Court Had Fundamental Jurisdiction To Adjudicate the Buyout Proceeding
a. Applicable Law
“A judgment or order is void when there is an absence of fundamental jurisdiction. However, an act in excess of jurisdiction simply renders an order of judgment voidable. `Lack of jurisdiction in its most fundamental or 139*139 strict sense means an entire absence of … authority over the subject matter or the parties…. [Citation.]’ In contrast, a court acts in excess of jurisdiction in the broader sense `where, though the court has jurisdiction over the subject matter and the parties in the fundamental sense, it has no “jurisdiction” (or power) to act except in a particular manner, or to give certain kinds of relief, or to act without the occurrence of certain procedural prerequisites.’ [Citation.] `Action “in excess of jurisdiction” by a court that has jurisdiction in the “fundamental sense” … is not void, but only voidable.'” (Adoption of Myah M., supra, 201 Cal.App.4th at p. 1531; see In re Marriage of Goddard (2004) 33 Cal.4th 49, 56 [14 Cal.Rptr.3d 50, 90 P.3d 1209] [“A court can lack fundamental authority over the subject matter, question presented, or party, making its judgment void, or it can merely act in excess of its jurisdiction or defined power, rendering the judgment voidable.”]; see also American Contractors, supra, 33 Cal.4th at pp. 660-661; People v. The North River Ins. Co. (2020) 58 Cal.App.5th 300, 311-313 [272 Cal.Rptr.3d 370]; Torjesen v. Mansdorf (2016) 1 Cal.App.5th 111, 117 [204 Cal.Rptr.3d 325] (Torjesen).)

“Subject matter jurisdiction … is the power of the court over a cause of action or to act in a particular way.” (Greener v. Workers’ Comp. Appeals Bd. (1993) 6 Cal.4th 1028, 1035 [25 Cal.Rptr.2d 539, 863 P.2d 784]; see People v. Superior Court (Mitchell) (2010) 184 Cal.App.4th 451, 458 [109 Cal.Rptr.3d 207].) “[L]ack of subject matter jurisdiction means the entire absence of power to hear or determine a case; i.e., an absence of authority over the subject matter.” (Guardianship of Ariana K. (2004) 120 Cal.App.4th 690, 701 [15 Cal.Rptr.3d 817]; see Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 288 [109 P.2d 942] (Abelleira) [“A court has no jurisdiction to hear or determine a case where the type of proceeding or the amount in controversy is beyond the jurisdiction defined for that particular court by statute or constitutional provision.”]; 2 Witkin, Cal. Procedure (2020) Jurisdiction, § 44 [“A court without authority to try actions of the type or class to which the action belongs is `not competent,’ i.e., it has no jurisdiction of the subject matter.”].)

“Subject matter jurisdiction is conferred by constitutional or statutory law.” (Guardianship of Ariana K., supra, 120 Cal.App.4th at p. 701.) In general, article VI, section 10 of the California Constitution confers broad authority on the superior courts. (Donaldson v. National Marine, Inc. (2005) 35 Cal.4th 503, 512 [25 Cal.Rptr.3d 584, 107 P.3d 254]; see Cal. Const., art. VI, § 10 [except as otherwise provided, “[s]uperior courts have original jurisdiction in all other causes”]; see also Code Civ. Proc., § 410.10 [a “court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States”].) “A court does not necessarily act without subject matter jurisdiction merely by issuing a judgment going beyond the sphere of action prescribed by law. `Speaking generally, any acts which exceed the defined power of a court in any instance, 140*140 whether that power be defined by constitutional provision, express statutory declaration, or rules developed by the courts and followed under the doctrine of stare decisis, are in excess of jurisdiction.'” (Pajaro Valley Water Management Agency v. McGrath (2005) 128 Cal.App.4th 1093, 1101 [27 Cal.Rptr.3d 741]; see American Contractors, supra, 33 Cal.4th at p. 661 [“`”[W]hen a statute authorizes [a] prescribed procedure, and the court acts contrary to the authority thus conferred, it has exceeded its jurisdiction.”‘”].)

b. The Buyout Statutes Conferred Subject Matter Jurisdiction for the Buyout Proceeding
Michael and Joseph do not argue the trial court lacked subject matter jurisdiction over Leonard’s causes of action for involuntary dissolution. Nor do they contend the court lacked subject matter jurisdiction to adjudicate the appraisal and buyout proceeding for the 14 entity defendants Leonard named in those causes of action or to dissolve them. They argue only that the “addition of the UCNP entities in the buyout proceedings, when they were not the subjects of a pending judicial dissolution cause of action, rendered the alternative decree, and ensuing judgments and orders,” void.[6]

To determine whether an error is jurisdictional in a fundamental sense, courts “look first to the language of the statute.” (American Contractors, supra, 33 Cal.4th at p. 661; see In re Marriage of Goddard, supra, 33 Cal.4th at p. 54; People v. The North River Ins. Co., supra, 58 Cal.App.5th at p. 313.) For example, in American Contractors the Supreme Court considered whether the trial court lacked fundamental jurisdiction when it declared a bond forfeited without complying with two “jurisdictional prerequisites” in Pen. Code, §§ 1305 and 1306. (See generally People v. Safety 141*141 National Casualty Corp. (2016) 62 Cal.4th 703, 710 [199 Cal.Rptr.3d 272, 366 P.3d 57] [describing the jurisdictional prerequisites of Pen. Code, §§ 1305 and 1306].) The Supreme Court observed that neither statute declared the surety released or the bond exonerated if the court failed to comply with those prerequisites under the circumstances in that case. (American Contractors, at p. 661.) “Based on what sections 1305 and 1306 said and did not say, the Supreme Court [in American Contractors] concluded the failure `to follow the procedural requirements to enter judgment properly did not affect the court’s statutory control and jurisdiction over the bond.’ [Citation.] Accordingly, the court held the trial `court’s failure to comply with section 1306 … “does not effect a fundamental loss of jurisdiction, i.e., `an entire absence of power to hear or determine the case, an absence of authority over the subject matter of the parties.'”‘” (People v. The North River Ins. Co., at p. 314, quoting American Contractors, at pp. 662-663.)

The buyout statutes established the court’s subject matter jurisdiction to conduct and adjudicate the buyout proceeding and to dissolve the entities subject to that proceeding. As discussed, the relevant language of section 2000 states: “In any suit for involuntary dissolution, … the holders of 50 percent or more of the voting power of the corporation (the `purchasing parties’) may avoid the dissolution of the corporation and the appointment of any receiver by purchasing for cash the shares owned by the plaintiffs … (the `moving parties’) at their fair value. [T]he court upon application of the purchasing parties, … in the pending action …, shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair value of the shares owned by the moving parties. The court shall enter a decree, which shall provide in the alternative for winding up and dissolution of the corporation unless payment is made for the shares within the time specified by the decree. If the purchasing parties do not make payment for the shares within the time specified, judgment shall be entered against them and the surety or sureties on the bond for the amount of the expenses (including attorneys’ fees) of the moving parties.” (§ 2000, subds. (a)-(c), italics added; see §§ 15908.02, 17707.03.) Thus, if the purchasing parties follow through on buying out the minority shareholder (or member or partner), the buyout proceeding successfully avoids litigation and the dissolution of the corporation. But if the purchasing parties are unable or unwilling to buy out the minority shareholder, the entity subject to the proceeding is wound up and dissolved.

In compliance with the buyout statutes, the trial court on August 23, 2016 granted Michael and Joseph’s motion to stay Leonard’s involuntary dissolution causes of action, thereby establishing subject matter jurisdiction for the buyout proceeding. The court still had subject matter jurisdiction over the proceeding on January 5, 2017, when Michael, Joseph, and Leonard stipulated to include the UCNP entities in the proceeding. And the court had 142*142 subject matter jurisdiction on July 28, 2017, when it issued the alternative decree providing that the entity defendants and the UCNP entities would be wound up and dissolved if Michael and Joseph did not pay Leonard by September 11, 2017.

The buyout statutes do not address circumstances where, as here, the owners of an entity all agree to submit that entity (or, here, several entities) to an existing buyout proceeding over which the trial court undoubtedly had authority. But considering the statutes’ silence on this issue, the broad authority conferred on superior courts (including the power to dissolve companies organized under the laws of California), and cases holding that neither the addition of nonparties to an action nor the violation of certain statutory requirements (even where “jurisdictional”) divests a court of its subject matter jurisdiction, we conclude the addition of the UCNP entities to the existing buyout proceeding did not undermine the court’s “inherent authority to deal with the case or matter before it.” (Law Offices of Ian Herzog v. Law Offices of Joseph M. Fredrics (1998) 61 Cal.App.4th 672, 680 [71 Cal.Rptr.2d 771]; see American Contractors, supra, 33 Cal.4th at p. 661; Abelleira, supra, 17 Cal.2d at p. 288; Conservatorship of O’Connor (1996) 48 Cal.App.4th 1076, 1087-1088 [56 Cal.Rptr.2d 386].)

For example, in Serrano v. Stefan Merli Plastering Co., Inc. (2008) 162 Cal.App.4th 1014 [76 Cal.Rptr.3d 559] the court held the trial court adjudicating a personal injury action had subject matter jurisdiction to adjudicate a fee dispute between the plaintiff and a nonparty court reporting company. Even though the dispute “was not within the scope of the pleadings and pertained to a third party” (id. at p. 1028), the matter involved a right created by California discovery statutes and the court’s authority to control the conduct of its ministerial officers, and the dispute was “typical of those commonly adjudicated in California courts” (id. at p. 1030). Similarly, in Lovett v. Carrasco (1998) 63 Cal.App.4th 48 [73 Cal.Rptr.2d 496] the court held the trial court had subject matter jurisdiction to adjudicate third parties’ medical lien claims in an underlying personal injury action. (Id. at p. 54.) The court in Lovett stated that “adjudication of claimants’ medical lien claims is clearly within the general subject matter jurisdiction of the superior court.” (Ibid.) Thus, the “jurisdictional issue [was] whether the court acted in excess of its jurisdiction by adjudicating the liens in the [underlying] action,” not whether the court had fundamental jurisdiction. (Ibid.; see Law Offices of Stanley J. Bell v. Shine, Browne & Diamond (1995) 36 Cal.App.4th 1011, 1021-1023 [43 Cal.Rptr.2d 717] [trial court in an underlying personal injury action had subject matter jurisdiction to issue an order denying a claim under an attorney’s lien, even though contractual liens generally are enforced in an independent action by the attorney against the client].)

143*143 Nor did the fact the trial court arguably acted contrary to the authority conferred by the buyout statutes divest the court of subject matter jurisdiction. In Torjesen the plaintiff judgment creditor filed a petition under the Enforcement of Judgments Law (Code Civ. Proc., § 680.010 et seq.) to invalidate a third party claim on a deceased judgment debtor’s property. (Torjesen, supra, 1 Cal.App.5th at p. 113.) The Enforcement of Judgments Law, however, provides that, “[a]fter the death of the judgment debtor, enforcement of a judgment against property in the judgment debtor’s estate is governed by the Probate Code, and not by this title.” (Code Civ. Proc., § 686.020.) The trial court nevertheless granted the judgment creditor’s petition under the wrong statute. (Torjesen, at p. 113.) The third party claimant did not appeal from that ruling, but two years later filed a motion to vacate the order, arguing the trial court did not have jurisdiction to proceed under the Enforcement of Judgments Law. (Torjesen, at p. 113) The court in Torjesen rejected that argument: “Without question, the superior court has jurisdiction over disputes related to the enforcement of judgments and the validity of claims to property that has been levied upon. [Citations.] The statutory scheme does not deprive the superior court of jurisdiction over these matters. It simply limits the manner in which a judgment creditor may enforce a judgment against a deceased judgment debtor’s property.” (Id. at p. 118.) The court in Torjesen agreed that the superior court erred in allowing the judgment creditor to proceed under the Enforcement of Judgments Law, but the court held “that error was an act in excess of jurisdiction” rendering the order voidable, not void for lack of subject matter jurisdiction. (Torjesen, at p. 118; see Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 97-98, 99 [101 Cal.Rptr. 745, 496 P.2d 817] [default judgments erroneously entered in favor of a collection agency that knowingly filed “statutorily inadequate complaints” in the wrong counties were not void for lack of “`jurisdiction’ in the fundamental sense”]; Law Offices of Ian Herzog v. Law Offices of Joseph M. Fredrics, supra, 61 Cal.App.4th at p. 680 [order compelling arbitration in the absence of an arbitration agreement, in violation of Code Civ. Proc., § 1281, was only an act in excess of jurisdiction]; In re Marriage of Hinman (1992) 6 Cal.App.4th 711, 718 [8 Cal.Rptr.2d 245] [“while the court’s award [granting joint custody to a nonbiological parent] may have been beyond its statutory authority, the court did not lack jurisdiction in the fundamental sense”].)

Thus, even if the trial court erred by including the five UCNP entities in the appraisal and buyout proceeding, the trial court undoubtedly had subject matter jurisdiction over the proceeding. Michael and Joseph do not contest the court’s jurisdiction to hear and determine the case with regard to the 14 entity defendants. Neither the voluntary addition of the five UCNP entities to the buyout proceeding nor the trial court’s purported error in issuing the alternative decree over entities that were not parties to the involuntary 144*144 dissolution causes of action disturbed or eliminated the court’s subject matter jurisdiction. At most, the alternative decree was an act in excess of the statutory authority conferred by the buyout statutes. (See Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at p. 99; People v. The North River Ins. Co., supra, 58 Cal.App.5th at p. 314.)

The cases cited by Michael and Joseph do not hold otherwise. In general, those cases stand for the proposition that the court’s power to conduct a special proceeding under the buyout statutes depends on the existence of a cause of action for involuntary dissolution. (See Boschetti v. Pacific Bay Investments, Inc. (2019) 32 Cal.App.5th 1059, 1066 [244 Cal.Rptr.3d 480] [“`the right of buyout under section 15908.02 is dependent upon a cause of action for judicial dissolution'”]; Ontiveros v. Constable, supra, 27 Cal.App.5th at p. 271 [“a party’s right under section 2000 depends entirely on the existence of a cause of action for involuntary dissolution of a corporation”]; Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474, 1481 [186 Cal.Rptr.3d 198] [“[u]pon dismissal of [a] dissolution cause of action, there is no dissolution to avoid and, thus, no right to buy out plaintiff’s interests” under section 2000]; Panakosta Partners, LP v. Hammer Lane Management, LLC (2011) 199 Cal.App.4th 612, 635 [131 Cal.Rptr.3d 835] [“[w]ithout a pending judicial dissolution action, the trial court was without jurisdiction to allow the buyout petition to proceed”]; Dabney v. Dabney (2002) 104 Cal.App.4th 379, 383 [127 Cal.Rptr.2d 917] [“no court has inherent authority to decide a matter for which there is no legally recognized cause of action”]; Housing Group v. United Nat. Ins. Co. (2001) 90 Cal.App.4th 1106, 1107-1108 [109 Cal.Rptr.2d 497] [pending litigation is required before parties may stipulate to the appointment of a judicial referee or temporary judge to secure a settlement enforceable by the court].) Unlike those cases, here there were causes of action for involuntary dissolution pending at the time Michael and Joseph moved to stay them and initiate the buyout proceeding and at the time Michael, Joseph, and Leonard agreed to add the five UCNP entities to the pending proceeding.

Michael and Joseph also argue the trial court could not have subject matter jurisdiction unless Leonard added the UCNP entities as defendants to a pending cause of action. But third parties may appear and be bound by a judgment without being named in a complaint. (See People ex rel. Becerra v. Superior Court (2018) 29 Cal.App.5th 486, 493 [240 Cal.Rptr.3d 250]; Fireman’s Fund Ins. Co. v. Sparks Construction, Inc. (2004) 114 Cal.App.4th 1135, 1145-1147 [8 Cal.Rptr.3d 446]; In re Marriage of Williams (1985) 163 Cal.App.3d 753, 759-760 [209 Cal.Rptr. 827].) As stated, Michael and Joseph do not argue the trial court lacked personal jurisdiction over the five UCNP entities, and in any event the UCNP entities’ participation in the appraisal and buyout proceeding without objection (to this day) acknowledged the authority of the court in that proceeding. (See Rockefeller 145*145 Technology Investments (Asia) VII v. Changzhou SinoType Technology Co., Ltd. (2020) 9 Cal.5th 125, 139 [260 Cal.Rptr.3d 442, 460 P.3d 764] [“`a party may voluntarily submit himself to the jurisdiction of the court, or may, by failing to seasonably object thereto, waive his right to question jurisdiction over him'”]; Becerra, at p. 493 [“a person can become a party to an action, even if not named in the complaint, by appearing and participating without any objection by the other parties”]; Thomson v. Anderson (2003) 113 Cal.App.4th 258, 266 [6 Cal.Rptr.3d 262] [“`[b]ecause the personal jurisdiction requirement is a waivable right, there are a “variety of legal arrangements” by which a litigant may give “express or implied consent to the personal jurisdiction of the court”‘”].)[7]

2. Michael and Joseph Cannot Collaterally Attack the Alternative Decree as a Voidable Order
As discussed, a party generally may not collaterally attack errors in excess of jurisdiction once the judgment or order is final unless there are “unusual circumstances” that prevented the party from making an “earlier and more appropriate attack.” (American Contractors, supra, 33 Cal.4th at p. 661; see People v. The North River Ins. Co., supra, 58 Cal.App.5th at p. 311; Torjesen, supra, 1 Cal.App.5th at p. 118.) No unusual circumstances prevented Michael and Joseph from an earlier attack on the alternative decree.[8] Indeed, Michael and Joseph could have appealed, and did appeal, from the 146*146 alternative decree, but they dismissed their appeal. And the UCNP entities never objected to their inclusion in the buyout proceeding or appealed from the alternative decree or judgment. (See Travis v. Brand (2021) 62 Cal.App.5th 240, 254 [276 Cal.Rptr.3d 535] [nonparties have standing to appeal where “the judgment has a `res judicata effect'” or is otherwise binding on the nonparty], review granted June 23, 2021, S268480; Marsh v. Mountain Zephyr, Inc. (1996) 43 Cal.App.4th 289, 295 [50 Cal.Rptr.2d 493] [same].)

Moreover, a “party may be precluded from setting aside a voidable act or judgment made in excess of jurisdiction by `”principles of estoppel.”‘ [Citation.] `When … the court has jurisdiction of the subject, a party who seeks or consents to action beyond the court’s power as defined by statute or decisional rule may be estopped to complain of the ensuing action in excess of jurisdiction. [Citations.] Whether he shall be estopped depends on the importance of the irregularity not only to the parties but to the functioning of the courts and in some instances on other considerations of public policy. A litigant who has stipulated to a procedure in excess of jurisdiction may be estopped to question it when “[t]o hold otherwise would permit the parties to trifle with the courts.”‘” (Mt. Holyoke Homes, LP v. California Coastal Com. (2008) 167 Cal.App.4th 830, 842 [84 Cal.Rptr.3d 452]; see Garibotti v. Hinkle (2015) 243 Cal.App.4th 470, 481 [197 Cal.Rptr.3d 61] [“`The doctrine of estoppel to contest jurisdiction … “provides that when a court has subject matter jurisdiction over an action, `a party who seeks or consents to action beyond the court’s power as defined by statute or decisional rule may be estopped to complain of the ensuing action in excess of jurisdiction.'”‘”].)

Michael and Joseph agreed to include the five UCNP entities in the buyout proceeding and did not question the validity of the court’s alternative decree for 18 months (when they first raised the issue on appeal from the award of attorneys’ fees and costs in Schrage I).[9] They are estopped from arguing the trial court acted in excess of its jurisdiction by including the UCNP entities in the alternative decree. (See Kristine H. v. Lisa R. (2005) 37 Cal.4th 156, 166 [33 Cal.Rptr.3d 81, 117 P.3d 690] [“Given that the court had subject matter jurisdiction to determine the parentage of the unborn child, and that [the plaintiff] invoked that jurisdiction, stipulated to the issuance of a judgment, and enjoyed the benefits of that judgment for nearly two years, it would be unfair both to [the defendant] and the child to permit [the plaintiff] to challenge the validity of that judgment.”]; Torjesen, supra, 1 Cal.App.5th at 147*147 p. 116 [a court order in excess of jurisdiction “was not subject to collateral attack two years after it was entered”]; Mt. Holyoke Homes, LP v. California Coastal Com., supra, 167 Cal.App.4th at p. 842 [applicants could not set aside a voidable judgment where the applicants did not question jurisdiction until three and a half years after the latest date on which it contended the coastal commission lost jurisdiction].)

Michael and Joseph attempt to salvage their collateral attack on the alternative decree by asserting they “forewarned the trial court of this jurisdictional impediment” and agreed only to include the UCNP entities in the appraisal, not for purposes of the winding up and dissolution that followed their failure to buy Leonard’s interest in the appraised entities. This assertion does not persuade. First, Michael and Joseph’s so-called forewarning appeared in their motion to stay the involuntary dissolution causes of action filed six months before their stipulation to include the UCNP entities in the appraisal and buyout proceeding, and it made no mention of the UCNP entities. Second, the plain language of the stipulated order undermines Michael and Joseph’s position. It is true the stipulated order lists the UCNP entities as “Entities to be Valued as Part of the Appraisal Engagement,” which in turn is defined as “the engagement and qualifications of the appraisers and the appraisal process.” But the stipulated order also provides Judge Meisinger was to issue an order stating the cumulative value of Leonard’s one-third interest in the Sage Automotive Group, “which shall constitute the buy-out price to be paid by Michael and Joseph to Leonard (the `Buy-Out Value’),” and the order defines the Sage Automotive Group to include the UCNP entities. Thus, Michael and Joseph agreed the amount they had to pay to prevent the winding up and dissolution of the Sage Automotive Group included the value of the UCNP entities. If Michael and Joseph intended only to submit the UCNP entities to the appraisal process, they would not have agreed to an aggregate buyout value that did not differentiate among individual entities, or at least among the entity defendants and the UCNP entities.[10]

148*148 Michael and Joseph are attempting to unwind the alternative decree on the basis the trial court erred in doing the very thing Michael and Joseph asked the court to do. To approve their belated request would invite the very trifling with the courts the doctrine of estoppel to contest jurisdiction seeks to prevent. (See Lovett v. Carrasco, supra, 63 Cal.App.4th at pp. 54-55 [allowing a litigant to stipulate to a procedure in excess of jurisdiction and then challenge the procedure on appeal, would permit the parties “`”`to trifle with the courts'”‘”]; Law Offices of Ian Herzog v. Law Offices of Joseph M. Fredrics, supra, 61 Cal.App.4th at p. 680 [defendant’s stipulation the court could order the parties to arbitration estopped him from attacking arbitration award on that basis]; see also Kristine H. v. Lisa R., supra, 37 Cal.4th at p. 166; Mt. Holyoke Homes, LP v. California Coastal Com., supra, 167 Cal.App.4th at p. 842; In re Marriage of Jackson (2006) 136 Cal.App.4th 980, 989 [39 Cal.Rptr.3d 365]; Conservatorship of O’Connor, supra, 48 Cal.App.4th at p. 1092.)[11]

C. Leonard Lacked Standing To Assert His Cause of Action for Breach of Fiduciary Duty
Michael and Joseph contend Leonard did not have standing to assert an individual cause of action against them for breach of fiduciary duty because Leonard sought and received an award of damages to the Sage Automotive Group and not to himself. Leonard contends that he suffered an individual injury and that, in any event, close corporations like those comprising the Sage Automotive Group are not subject to the derivative action rule. Michael and Joseph have the better argument: The allegations in Leonard’s complaint, the evidence at trial, and the court’s findings show Leonard’s causes of action were derivative.

149*149 1. Applicable Law
“[M]ajority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner. Majority shareholders may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority. Any use to which they put the corporation or their power to control the corporation must benefit all shareholders proportionately and must not conflict with the proper conduct of the corporation’s business.” (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108 [81 Cal.Rptr. 592, 460 P.2d 464] (Jones); accord, Sheley v. Harrop (2017) 9 Cal.App.5th 1147, 1171 [215 Cal.Rptr.3d 606]; see § 17704.09 [describing the fiduciary duties of members and managers of a limited liability company]; Feresi v. The Livery, LLC (2014) 232 Cal.App.4th 419, 425 [182 Cal.Rptr.3d 169] [same]; Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 424-425 [8 Cal.Rptr.3d 31] [describing the fiduciary obligations in a partnership].)

A minority shareholder may bring a cause of action for breach of fiduciary duty against majority shareholders as an individual claim or as a derivative claim, depending on the circumstances. (See Daly v. Yessne (2005) 131 Cal.App.4th 52, 63 [31 Cal.Rptr.3d 420]; Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1252-1253, 1257-1258 [18 Cal.Rptr.3d 187] (Jara); see also Sutter v. General Petroleum Corp. (1946) 28 Cal.2d 525, 530 [170 P.2d 898] [“a stockholder may sue as an individual where he is directly and individually injured although the corporation may also have a cause of action for the same wrong”]; Goles v. Sawhney (2016) 5 Cal.App.5th 1014, 1018, fn. 3 [210 Cal.Rptr.3d 261] [“A single cause of action by a shareholder can give rise to derivative claims, individual claims, or both.”]; Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1222 [18 Cal.Rptr.3d 276] [same].) But where a cause of action seeks to recover for harms to the corporation, the shareholders have no direct cause of action “[b]ecause a corporation exists as a separate legal entity” (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108 [72 Cal.Rptr.3d 129, 175 P.3d 1184] (Grosset)) and “`is the ultimate beneficiary of such a derivative suit'” (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1003 [84 Cal.Rptr.3d 642]). (See Cotton v. Expo Power Systems, Inc., supra, 170 Cal.App.4th at p. 1380 [“A derivative claim is a property right that belongs to the corporation.”].)

“The shareholders may, however, bring a derivative suit to enforce the corporation’s rights and redress its injuries when the board of directors fails or refuses to do so. When a derivative suit is brought to litigate the rights of the corporation, the corporation is an indispensable party and must be joined as a nominal defendant.” (Grosset, supra, 42 Cal.4th at p. 1108; 150*150 accord, Jones, supra, 1 Cal.3d at pp. 106-107; see Patrick v. Alacer Corp., supra, 167 Cal.App.4th at p. 1004 [“Though the corporation is essentially the plaintiff in a derivative action, `[w]hen a derivative suit is brought to litigate the rights of the corporation, the corporation … must be joined as a nominal defendant.'”].)

“An action is deemed derivative `”if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.”‘ [Citation.] When a derivative action is successful, the corporation is the only party that benefits from any recovery; the shareholders derive no benefit `”except the indirect benefit resulting from a realization upon the corporation’s assets.”‘” (Grosset, supra, 42 Cal.4th at p. 1108, fn. omitted; see Bader v. Anderson (2009) 179 Cal.App.4th 775, 793 [101 Cal.Rptr.3d 821] [“a derivative suit is one in which the shareholder seeks `redress of the wrong to the corporation'”].)

“`The stockholder’s individual suit, on the other hand, is a suit to enforce a right against the corporation which the stockholder possesses as an individual.'” (Jones, supra, 1 Cal.3d at p. 107, fn. omitted; see Bader v. Anderson, supra, 179 Cal.App.4th at p. 793; Denevi v. LGCC, LLC, supra, 121 Cal.App.4th at p. 1222.) For example, “`[i]f the injury is one to the plaintiff as a stockholder and to him individually, and not to the corporation, as where the action is based on a contract to which he is a party, or on a right belonging severally to him, or on a fraud affecting him directly, it is an individual action.'” (Sutter v. General Petroleum Corp., supra, 28 Cal.2d at p. 530.) “The individual wrong necessary to support a suit by a shareholder need not be unique to that plaintiff. The same injury may affect a substantial number of shareholders. If the injury is not incidental to an injury to the corporation, an individual cause of action exists.” (Jones, supra, 1 Cal.3d at p. 107, fn. omitted; see Bader, at p. 793 [“A direct (as opposed to a derivative) action is maintainable `only if the damages [are] not incidental to an injury to the corporation.'”]; see also Schuster v. Gardner (2005) 127 Cal.App.4th 305, 313 [25 Cal.Rptr.3d 468]; Denevi, at p. 1222; Nelson v. Anderson (1999) 72 Cal.App.4th 111, 124 [84 Cal.Rptr.2d 753] (Nelson).)

The principles governing derivative actions in the context of corporations apply to limited liability companies and limited partnerships. (See Sprengel v. Zbylut (2019) 40 Cal.App.5th 1028, 1040-1041 [253 Cal.Rptr.3d 561] [limited liability company]; Everest Investors 8 v. McNeil Partners, supra, 114 Cal.App.4th at pp. 425-426 [limited partnership].) We review de novo the trial court’s ruling Leonard had standing to maintain his cause of action for breach of fiduciary duty as an individual claim, rather than a 151*151 derivative claim. (See A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 687 [251 Cal.Rptr.3d 423] [standing is a question of law to which we apply a de novo standard of review]; Citizens for Amending Proposition L v. City of Pomona (2018) 28 Cal.App.5th 1159, 1174 [239 Cal.Rptr.3d 750] [same].)

2. Leonard Sought and Recovered Damages for Injuries to the Sage Automotive Group
Leonard alleged Michael and Joseph committed a wide variety of misdeeds, including “misappropriat[ing] at least $1.7 million of company funds” to open, advertise, and operate a Lotus dealership without Leonard’s consent or participation; mismanaging the Sage Automotive Group by engaging in “dishonest and manipulative accounting practices”; using Sage Automotive Group assets for personal gain; undermining Leonard’s authority with Sage Automotive Group employees; denying Leonard access to Sage Automotive Group’s books, records, and bank accounts; ceasing payment for directors and officers insurance coverage; and rebranding the Sage Automotive Group without Leonard’s consent. Leonard alleged these acts “significantly impeded Leonard’s ability to manage or participate in the affairs of the [Sage Automotive Group],” “caused damage to the [Sage Automotive Group,] and devalued his interest in turn.”

At trial, Leonard’s expert witness on damages, Gordon Klein, calculated Leonard’s damages as one-third the difference between the 2015 court-approved valuation in the alternative decree and the value of the Sage Automotive Group at the time of trial, adjusted for market changes. Klein reviewed the dealerships’ financial statements “to ascertain the diminution in value which ha[d] occurred” and concluded they collectively had declined in value over $65 million since April 2015. Klein attributed additional losses to a $3.6 million settlement with the Federal Trade Commission that arose from alleged misconduct by Michael and Joseph, “[e]xcess payments” to accountants and lawyers, and a reserve of $6 million for the anticipated settlement of a warranty fraud case brought by Nissan Motor Company against Michael and Joseph. Klein opined the total “loss in value” of the Sage Automotive Group was over $75 million, of which one-third, or approximately $25 million, was “[s]uffered by [Leonard]” because he owned one-third of the businesses. Klein estimated that, depending on the court’s findings, losses due to market forces not attributable to Michael and Joseph’s “alleged mismanagement” could reduce Leonard’s damages to about $18 million. For this reason, Klein determined Leonard’s damages were between $18,311,746 and $24,418,473.

152*152 Klein also testified he did not include in his analysis any amounts for Leonard’s claims against Michael and Joseph for “`personal misappropriations'” or “personal aggrandizement,” which Klein defined as “taking economic benefits or sums that are outside the ordinary course of business and/or were not expenses incurred for the economic benefit of the business or its partners.” Klein also said he did not analyze whether using Sage Automotive Group funds to seed the Lotus dealership caused specific losses to the Group. Klein said the scope of his assignment was to focus on, “at the core, the diminution in the value of the dealerships, plus … avoidable liabilities and payments that, but for alleged misconduct …, should not have happened and, therefore, result[ed] in damages.”

The trial court, in its statement of decision, found Michael and Joseph “pushed [Leonard] out” of the Sage Automotive Group, leaving him no “meaningful control over its operations”; engaged in self-dealing by diverting Sage Automotive Group funds to the separately held Lotus dealership; expended Sage Automotive Group assets without authorization; engaged in false advertising that led to the settlement with the Federal Trade Commission and a “dramatic drop in profit[s]”; and left the Sage Automotive Group in such “financial turmoil” that some of its assets had to be sold to a competitor. The trial court credited Klein’s damages analysis and awarded Leonard the upper end of Klein’s range (i.e., $24,418,472), “given the defense’s total failure to substantiate market causes for the precipitous and undisputed decline” in the Sage Automotive Group’s value, offset by losses attributable to Leonard’s unclean hands.

The allegations in Leonard’s first amended complaint, the basis and calculation of Leonard’s damages at trial, and the court’s findings show that the gravamen of Leonard’s action was injury to the Sage Automotive Group and the “whole body of its stock and property” and that Leonard sought to, and ultimately did, recover damages for injuries to the entities. (Grosset, supra, 42 Cal.4th at p. 1108; see Avikian v. WTC Financial Corp. (2002) 98 Cal.App.4th 1108, 1115 [120 Cal.Rptr.2d 243] (Avikian) [plaintiffs’ “core claim” of mismanagement that caused the corporation’s demise “amount[ed] to a claim of injury to [the corporation] itself”]; Nelson, supra, 72 Cal.App.4th at p. 127 [“the action must be derivative” where the defendant’s actions caused the corporation to lose “earnings, profits, and opportunities, rendering all the shares valueless”].) Leonard did not allege, and the trial court did not award, damages for any injury that was not “incidental to an injury to the corporation.” (Jones, supra, 1 Cal.3d at p. 107; see ibid. [although the plaintiff alleged “the value of her stock [was] diminished by defendants’ actions,” she did not allege “the diminished value reflect[ed] an injury to the corporation and resultant depreciation in the value of the stock”]; Avikian, at p. 1116 [the plaintiffs’ “own damages, the loss in value of their investments 153*153 in [the corporation], were merely incidental to the alleged harm inflicted upon [the corporation] and all its shareholders” (italics omitted)].)

Indeed, Leonard’s primary complaint was that his brothers’ mismanagement (including by driving him out of the Sage Automotive Group) squandered the Sage Automotive Group’s assets and ultimately led to its demise. That is a derivative claim. “[W]here conduct, including mismanagement by corporate officers, causes damage to the corporation, it is the entity that must bring suit; the individual shareholder may not bring an action for indirect personal losses (i.e., decrease in stock value) sustained as a result of the overall harm to the entity.” (Bader v. Anderson, supra, 179 Cal.App.4th at p. 788; see Heshejin v. Rostami (2020) 54 Cal.App.5th 984, 994, fn. 10 [268 Cal.Rptr.3d 836] [“`”a shareholder cannot bring a direct action for damages against management on the theory their alleged wrongdoing decreased the value of his or her stock (e.g., by reducing corporate assets and net worth)”‘”; instead, the “`”corporation itself must bring such an action, or a derivative suit may be brought on the corporation’s behalf”‘”]; Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 651 [32 Cal.Rptr.3d 266] [plaintiff’s breach of fiduciary duty claim for corporate mismanagement and diverting corporate assets was derivative]; PacLink Communications Internat., Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 964 [109 Cal.Rptr.2d 436] [minority members’ fraudulent transfer claim was derivative where the “injury was essentially a diminution in the value of their membership interest in the [limited liability company] occasioned by the loss of the company’s assets”]; Nelson, supra, 72 Cal.App.4th at pp. 125-126 [minority shareholder’s breach of fiduciary duty claim alleging the other shareholder of the corporation negligently managed the business was derivative]; Marsh et al., Marsh’s Cal. Corp. Law (2021 supp.) Derivative Action, § 15.11[A][1] [“The clearest cases [of derivative actions] are those involving situations where the alleged wrongful actions of the defendants have reduced the corporate assets and net worth.”].)

Leonard makes two arguments to show his cause of action for breach of fiduciary duty was an individual claim. First, Leonard lists 10 injuries that he says “hurt [him] alone.” None of the listed injuries, however, caused a discrete injury or damages to Leonard. Five of the listed injuries affected or reduced corporate assets or value without creating any nonincidental injuries to Leonard: (1) destruction of a document “related to personal spending using [Sage Automotive Group] funds”; (2) exclusion of Leonard from operational decisions; (3) falsification of corporate records and decisionmaking without Leonard’s input; (4) falsification of Leonard’s signature on an application to 154*154 purchase a Hyundai dealership;[12] and (5) the purchase of the Hyundai dealership without consulting Leonard.[13] Two injuries listed by Leonard—(6) instruction to Sage Automotive Group’s counsel to file a cross-complaint against Leonard, requiring Leonard “to `pay for a lawsuit against himself,'” and (7) use of the cross-complaint “as a `pretextual threat to remove Leonard as a board member'”—were cited by the trial court as evidence of Michael and Joseph’s oppression in support of the award of punitive damages; they were not bases for the compensatory damages award.

Another listed injury—(8) failure to honor the wish of the brothers’ father to make Leonard the majority owner of the Sage Automotive Group—is conduct ascribed to Sage Automotive Group’s (or their father’s) lawyer, not to Michael and Joseph; and another—(9) issuance of unequal distribution checks—is contradicted by the court’s statement of decision, which acknowledged that Leonard eventually received the missing distribution check, albeit six weeks after Michael and Joseph received theirs. That leaves (10), Leonard’s claim he suffered discrete injuries when Michael and Joseph reneged on their promise “`to “indemnify” Leonard'” for losses related to the Lotus dealership separately held by Michael and Joseph. The promise apparently flowed from the two brothers’ recognition they used Sage Automotive Group funds to seed the new Lotus dealership. Even if Michael and Joseph’s failure to indemnify Leonard and make him whole created an individual injury, the court awarded Leonard damages based on the overall diminution in value to the Sage Automotive Group, not the amount Michael and Joseph owed Leonard from funds used to start a separately owned venture.

Second, Leonard argues we should follow the decision in Jara, which, according to Leonard, “support[ed] the notion that the policy reasons undergirding the rule requiring shareholder lawsuits to proceed derivatively do not apply to actions involving closely held businesses” like the Sage Automotive Group. In Jara the minority shareholder of a corporation alleged the two other shareholders breached their fiduciary obligations by paying themselves excessive executive compensation without the plaintiff’s approval and for the purpose of reducing the amount of profit to be shared with the plaintiff. (Jara, supra, 121 Cal.App.4th at pp. 1248, 1258.) The plaintiff did not allege the two majority shareholders mismanaged the corporation; in fact, the corporation’s success enabled the majority shareholders to increase their executive compensation. (Id. at p. 1247.)

155*155 The court in Jara held that, while “the alleged payment of excessive compensation did have the potential of damaging the business,” the plaintiff stated an individual cause of action against the majority shareholders because he alleged the payment of executive compensation “was a device to distribute a disproportionate share of the profits to the two officer shareholders during a period of business success.” (Jara, supra, 121 Cal.App.4th at p. 1258.) The court read the Supreme Court’s decision in Jones to allow “a minority shareholder to bring a personal action alleging `a majority stockholders’ breach of a fiduciary duty to minority stockholders, which resulted in the majority stockholders retaining a disproportionate share of the corporation’s ongoing value.'” (Jara, at pp. 1257-1258; see Jones, supra, 1 Cal.3d at p. 107; see also Crain v. Electronic Memories & Magnetics Corp. (1975) 50 Cal.App.3d 509, 521-522 [123 Cal.Rptr. 419] [breach of fiduciary cause of action against a majority shareholder for self-dealing that enriched the majority shareholder and left minority shares “valueless and unsalable” was an individual claim].)

We have some doubt whether Jara was correctly decided. At a minimum, however, it is distinguishable. The court in Jara characterized the plaintiff’s claim as “tantamount to a discriminatory payment of dividends” and cited cases allowing individual causes of action to recover the value of disproportionate payments to majority shareholders. (Jara, supra, 121 Cal.App.4th at pp. 1256-1257, citing Smith v. Tele-Communication, Inc. (1982) 134 Cal.App.3d 338, 341-342 [184 Cal.Rptr. 571] [majority shareholders retained disproportionate value of tax savings]; Crain v. Electronic Memories & Magnetics Corp., supra, 50 Cal.App.3d at p. 521 [majority shareholder “deprived plaintiffs of their ownership interests in an ongoing and potentially profitable business without any compensation whatsoever”]; Low v. Wheeler (1962) 207 Cal.App.2d 477, 479 [24 Cal.Rptr. 538] [majority shareholders “refused to declare dividends” to minority shareholder]; De Martini v. Scavenger’s Protec. Assn. (1935) 3 Cal.App.2d 691, 698 [40 P.2d 317] [majority shareholders deprived the minority shareholders of their “`share of the profits of the business'”].)

The Jara court distinguished the circumstances in these cases from those in cases “dealing with mismanagement,” such as Avikian, supra, 98 Cal.App.4th 1108 and Nelson, supra, 72 Cal.App.4th 111. (Jara, supra, 121 Cal.App.4th at p. 1258.) In Avikian a group of minority shareholders alleged the majority shareholders improperly bought and sold assets of the corporation and, with the corporation in financial distress, chose to pursue a “self-serving arrangement[] causing the demise of [the corporation],” rather than accepting an investor who was “willing to rescue” the corporation. (Avikian, at p. 1116.) The court in Avikian held that these alleged acts harmed the corporation rather than merely “affect[ing] the way in which the parties owned it” (id. at p. 1115) and that, because the plaintiffs’ damages were “the loss in value of 156*156 their investments in [the corporation],” their damages were “merely incidental to the alleged harm inflicted upon [the corporation] and all its shareholders” (id. at p. 1116). In Nelson a minority shareholder sued the majority shareholder for breach of fiduciary duty after the majority shareholder made “improper management decisions,” causing the minority shareholder “to lose her investment and prospective profits.” (Nelson, at p. 124.) The minority shareholder argued she could bring an individual cause of action because she “suffered injury to her reputation and emotional distress, and lost her out-of-pocket expenses, as well as other employment opportunities.” (Ibid.) The court in Nelson disagreed: “Because all of the acts alleged to have caused [the plaintiff’s] injury amount to alleged misfeasance or negligence in managing the corporation’s business, causing the business to be a total failure, any [fiduciary] obligations so violated were duties owed directly and immediately to the corporation.” (Id. at p. 125.) Moreover, “[t]he economic damages proven at trial were lost profits to the corporation as the result of rejected opportunities.” (Id. at p. 126.)

This case is more like Avikian and Nelson than Jara. Unlike the plaintiff in Jara, Leonard did not allege Michael and Joseph retained a disproportionate share of the Sage Automotive Group’s value; he alleged Michael and Joseph destroyed the value of the businesses for all of the shareholders (and members and partners). The court awarded Leonard damages based on the overall diminution in value of the Sage Automotive Group, not the difference in value between Leonard’s shares in the Group and those of Michael and Joseph. (Cf. Jara, supra, 121 Cal.App.4th at p. 1258 [describing the plaintiff’s damages as his “fair share of the corporation’s profits”]; see also Jones, supra, 1 Cal.3d at p. 107 [the diminution in value of the minority shareholders’ stock did not “reflect[] an injury to the corporation,” but instead resulted from the majority shareholders’ self-serving scheme to increase the value of their shares]; Smith v. Tele-Communication, Inc., supra, 134 Cal.App.3d at p. 342 [plaintiff was “deprived of a portion of his distributive share of [the corporation]”].) Similar to the plaintiffs’ allegations in Avikian and Nelson, Leonard alleged that his brothers’ mismanagement diminished the value of the Sage Automotive Group overall and that the value of each of their interests, “in turn,” suffered accordingly. That Klein computed Leonard’s damages by dividing the Sage Automotive Group’s overall diminution of value by three confirms the gravamen of Leonard’s complaint was injury to the corporation as a whole, “`”without any severance or distribution among individual holders,”‘” and not to Leonard individually. (Grosset, supra, 42 Cal.4th at p. 1108; see Avikian, supra, 98 Cal.App.4th at p. 1116.)

The court in Jara also relied on the absence of policy considerations favoring a derivative action in the context of that case, including preventing “`a multiplicity of actions by each individual shareholder,'” protecting creditors “`who have first call on the corporate assets,'” and complying with procedural 157*157 prerequisites for bringing a derivative action under section 800.[14] (Jara, supra, 121 Cal.App.4th at pp. 1258-1259.) Section 800, the court stated, “shield[s] the corporation from meritless lawsuits by requiring the plaintiffs to have contemporaneous stock ownership and by giving the defendants the right to move the court for an order requiring a bond” and “requires the plaintiffs to submit a demand to the board of directors before filing suit” to encourage the “`intracorporate resolution of disputes'” and protect “`managerial freedom.'” (Jara, at p. 1259; see § 800, subds. (b) & (c).) The court in Jara observed: “The objective of preventing a multiplicity of lawsuits and assuring equal treatment for all aggrieved shareholders does not arise at all when there is only one minority shareholder. The objective of encouraging intracorporate resolution of disputes and protecting managerial freedom is entirely meaningless where the defendants constitute the entire complement of the board of directors and all the corporate officers. And the policy of preserving corporate assets for the benefit of creditors has, at best, a very weak application where the corporation remains a viable business.” (Jara, at p. 1259.)

The court in Nelson also considered whether the policies advanced by the derivative action rule applied in the context of close corporations and reached the opposite conclusion. The court stated: “A derivative action may appear to [the plaintiff] to be an empty formality when there are only two shareholders, and one of them is the alleged wrongdoer. However, the law demands certain prerequisites to bringing a derivative action which have not been alleged or proven in this case, such as alleging `in the complaint with particularity[, the] plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and … further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.'” (Nelson, supra, 72 Cal.App.4th at p. 127.)

We acknowledge the policies underlying the derivative action rule do not apply with equal force in actions involving closely held companies. Requiring Leonard to name the entities that comprise the Sage Automotive Group (and the UCNP entities) as nominal defendants in this action will not prevent a multiplicity of lawsuits or assure equal treatment for all aggrieved shareholders. And the objective of encouraging intracorporate resolution of disputes and 158*158 protecting managerial freedom has less meaning where Michael, Joseph, and Leonard constitute the board of directors and corporate officers. (See Jara, supra, 121 Cal.App.4th at p. 1259.) But the plain language of sections 800, 15910.02, and 17709.02 does not exclude close corporations or small partnerships or companies from the procedural prerequisites before a shareholder, limited partner, or member may file a derivative action. (See Nelson, supra, 72 Cal.App.4th at p. 127.) To allow Leonard to maintain his cause of action for breach of fiduciary duty as an individual action would essentially eliminate the derivative action rule in the context of close corporations and other closely held entities. California law does not support that result.

3. Leonard Did Not Allege a Derivative Cause of Action or Comply with the Statutory Prerequisites To Bring Such an Action
Leonard did not allege a derivative cause of action on behalf of the Sage Automotive Group (or any of its constituent entities) or attempt to comply with the requirements of sections 800, 15910.02, or 17709.02 to do so. Therefore, Leonard did not have standing to bring such an action, and the judgment on the cause of action for breach of fiduciary duty must be reversed. (See Bader v. Anderson, supra, 179 Cal.App.4th at p. 793; Nelson, supra, 72 Cal.App.4th at pp. 127-128.)

DISPOSITION
The judgment on the causes of action for involuntary dissolution is modified, consistent with Schrage I, to correct the amount in favor of Leonard Schrage to $401,509.50 and, as modified, is affirmed. The order denying Michael and Joseph’s motion to set aside the judgment is affirmed. The appeals from the alternative decree and the order appointing the referee are dismissed. The judgment on the cause of action for breach of fiduciary duty is reversed. The parties are to bear their costs on appeal.

Perluss, P. J., and Feuer, J., concurred.

[1] Undesignated statutory references are to the Corporations Code.

[2] We take judicial notice of the May 31, 2018 order of dismissal in Schrage v. Schrage (B285049) under Evidence Code sections 452, subdivision (d), and 459. The notice of appeal in this case purports to appeal again from the July 28, 2017 order. We dismiss the second appeal from that order as untimely.

[3] Michael and Joseph appealed from this portion of the judgment in Schrage I, and we modified the amount to strike $561,393.63 in injunction-related attorneys’ fees, leaving an award of $401,509.50 for referee fees and appraisal-related attorneys’ fees. (Schrage I, supra, B288478.)

[4] Joseph Schrage died after the trial court entered judgment in this action, and the executor of his estate filed the notice of appeal.

[5] Michael and Joseph do not argue the trial court lacked personal jurisdiction over the UCNP entities, even though the two brothers claim they made that argument in their motions for a new trial and for an order vacating the judgment, and even though their opening brief on appeal cites law that a judgment is void if the trial court lacked personal jurisdiction.

[6] We do not address Michael and Joseph’s argument the trial court lacked subject matter and personal jurisdiction to order “post judgment, Sage Vermont, nunc pro tunc, as a `dissolved entity’ under the control of the receiver to be wound up.” There is no indication in the record Michael and Joseph appealed from that order, which was issued on August 16, 2019, after Michael and Joseph filed their notices of appeal in this action, and which is not included in the record of this appeal. Even assuming the August 16, 2019 order was appealable, we do not have jurisdiction to review it in this appeal. (See In re Baycol Cases I & II (2011) 51 Cal.4th 751, 761, fn. 8 [122 Cal.Rptr.3d 153, 248 P.3d 681] [“if an order is appealable, [an] appeal must be taken or the right to appellate review is forfeited”]; Williams v. Impax Laboratories, Inc. (2019) 41 Cal.App.5th 1060, 1071 [254 Cal.Rptr.3d 707] [same].) In addition, the vast majority of Michael and Joseph’s argument appears in a footnote. (See Sabi v. Sterling (2010) 183 Cal.App.4th 916, 947 [107 Cal.Rptr.3d 805] [“Footnotes are not the appropriate vehicle for stating contentions on appeal.”]; Evans v. Centerstone Development Co. (2005) 134 Cal.App.4th 151, 160 [35 Cal.Rptr.3d 745] [raising an issue in a two-page footnote “is a violation of court rules that require arguments to be contained in discrete sections with headings summarizing the point”]; see also Holden v. City of San Diego (2019) 43 Cal.App.5th 404, 419-420 [255 Cal.Rptr.3d 873] [an “appellant cannot bury a substantive legal argument in a footnote and hope to avoid waiver of that argument”].)

[7] We also question whether Michael and Joseph have standing to assert this argument on behalf of the UCNP entities. (See City of Riverside v. Horspool (2014) 223 Cal.App.4th 670, 678 [167 Cal.Rptr.3d 440] [a party may appeal “only that portion of the judgment adverse to the appealing party’s interest”]; In re Marriage of Hinman, supra, 6 Cal.App.4th at p. 719, fn. 3 [an “appellant may only complain of errors which injuriously affect her”]; Nichols v. Nichols (1933) 135 Cal.App. 488, 491 [27 P.2d 414] [an appellant cannot “urge errors which affect only his coparties who do not appeal, and such errors can be reviewed only at the instance of the parties affected thereby”]; see also Brenner v. Universal Health Services of Rancho Springs, Inc. (2017) 12 Cal.App.5th 589, 605 [219 Cal.Rptr.3d 135] [“As a general rule, a third party does not have standing to bring a claim asserting a violation of someone else’s rights.”].) After all, as we will discuss, Michael and Joseph argue Leonard lacked standing to assert his cause of action for breach of fiduciary duty for the very reason the alleged violations harmed only the entity defendants, not Leonard. Similarly, Michael and Joseph arguably lack standing to argue on behalf of the UCNP entities that the alternative decree and judgment cannot bind the UCNP entities. Although the buyout statutes give any shareholder aggrieved by an alternative decree standing to appeal the court’s decision (§§ 2000, subd. (c), 17707.03, subd. (c)(3), § 15908.02, subd. (d)), Michael and Joseph dismissed their appeal from the alternative decree. And they do not argue on appeal they were injured by the court’s exercise of jurisdiction over the UCNP entities.

[8] The January 5, 2017 stipulated order gave Michael and Joseph the right to raise any dispute concerning the proceedings with Judge Meisinger. According to the alternative decree, after the appraisal and valuation process was complete Michael and Joseph asked Judge Meisinger for the first time to make discrete findings on the value of the constituent entities comprising the Sage Automotive Group (which included the UCNP entities). Judge Meisinger denied Michael and Joseph’s request “for the reasons stated in the transcript of that hearing.” Michael and Joseph do not challenge that aspect of Judge Meisinger’s decision or the alternative decree, nor did they include the transcript of the hearing before Judge Meisinger in the record on appeal.

[9] In Schrage I we rejected Michael and Joseph’s argument the alternative decree was void for lack of jurisdiction because they failed to appeal directly from the order, file a motion under Code of Civil Procedure section 473, subdivision (d), or file a collateral action challenging the order. (Schrage I, supra, B288478.)

[10] Michael and Joseph recognize their collateral attack on the consent decree is limited to jurisdictional arguments. (See Kabran v. Sharp Memorial Hospital (2017) 2 Cal.5th 330, 339 [212 Cal.Rptr.3d 361, 386 P.3d 1159]; Armstrong v. Armstrong (1976) 15 Cal.3d 942, 950-951 [126 Cal.Rptr. 805, 544 P.2d 941].) In a nod to that limitation, Michael and Joseph argue the trial court “exceeded its jurisdiction” by failing to include in the buyout value “the economic impact of Leonard’s derivative allegations and prayer in his verified complaint.” This is not a jurisdictional argument; it is an argument the trial court made a substantive error in determining the value of the buyout entities. A “mistaken application of law” cannot be collaterally attacked. (Armstrong, at pp. 950-951; see Fireman’s Fund Ins. Co. v. Workers’ Comp. Appeals Bd. (2010) 181 Cal.App.4th 752, 767 [104 Cal.Rptr.3d 641] [“Errors of substantive law are within the jurisdiction of a court and are not typically acts beyond the court’s fundamental authority to act.”].)

[11] Michael and Joseph listed in their notices of appeal a “Void Judgment” dated September 27, 2017, which was actually the trial court’s order appointing a receiver. That order was appealable, and Michael and Joseph did not file a timely notice of appeal. (See Code Civ. Proc., § 904.1, subd. (a)(7); Wells Fargo Financial Leasing, Inc. v. D & M Cabinets (2009) 177 Cal.App.4th 59, 66 [99 Cal.Rptr.3d 97].) Because Michael and Joseph do not argue the order was void, except as a consequence of the court’s lack of jurisdiction to enter the alternative decree, we do not have jurisdiction to consider any appeal from the September 27, 2017 order and must dismiss the appeal from that order. (See City of Calexico v. Bergeson (2021) 64 Cal.App.5th 180, 189 [278 Cal.Rptr.3d 470].) And even if we had jurisdiction, Michael and Joseph forfeited the argument by failing to support it in their briefs with any argument or citation to authority. (See Rios v. Singh (2021) 65 Cal.App.5th 871, 881 [280 Cal.Rptr.3d 404]; Cal. Rules of Court, rule 8.204(a)(1)(B) [briefs must support each point by argument and, if possible, by citation of authority].) And, even if we considered the argument on the merits, it would fail for the same reasons the argument concerning the alternative decree fails.

Michael and Joseph also appeal from the trial court’s postjudgment order denying their motion to set aside the judgment under Code of Civil Procedure sections 663 and 663a on the same grounds. That order is appealable. (See Ryan v. Rosenfeld (2017) 3 Cal.5th 124, 131-135 [218 Cal.Rptr.3d 654, 395 P.3d 689].) We affirm it for the same easons we affirm the judgment of dissolution.

[12] Leonard presumably could allege an individual injury as a result of identity theft, but he did not, and the court did not award any damages for identity theft or similar injury.

[13] In connection with the withholding of books and records, Leonard did not allege his inability to inspect company records precluded him from discharging his fiduciary duty or attempting to enforce his inspection rights under section 1601 or 1602. (See generally Wolf v. CDS Devco (2010) 185 Cal.App.4th 903, 916 [110 Cal.Rptr.3d 850]; Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39 Cal.App.4th 1844, 1856 [46 Cal.Rptr.2d 696].)

[14] Section 800 states the procedural prerequisites to bringing a derivative action against a corporation. In general, section 800, subdivision (b), requires a shareholder to inform the directors about the action and to “make a reasonable effort to induce them to commence suit themselves or otherwise redress the wrong, unless such efforts would be `useless’ or `futile.'” (Friedman et al., Cal. Practice Guide: Corporations (The Rutter Group 2021 supp.)  6:622; see § 800, subd. (b)(2).) Section 800, subdivision (c), gives the corporation and its directors the right to ask the court to require a bond under certain circumstances. Sections 17709.02 and 15910.02 provide similar procedural requirements for derivative actions on behalf of limited liability companies and limited partnerships, respectively.