Harvey v. The Landing Homeowners Assn.

Harvey v. The Landing Homeowners Association

76 Cal.Rptr.3d 41 (2008)

Summary by Mary M. Howell, Esq.:

Facts

The association consisted of a four story building with 92 units. The units on the top story had adjacent common area, essentially attics, which could be accessed only by the adjacent units. Over the years, the top-story homeowners had been the habit of using those spaces as attics. When another owner complained in 2002, the board investigated the uses, and discovered various types of uses, some or all of which violated the CC&Rs. The board sent violation notices, and the affected owners responded, including legal opinions to the effect that their long-term use had given rise to irrevocable use rights. After evaluating the pros and cons of the situation, the board elected to address the issue by the use of “permission forms,” granting the owners the right to continued use, but conditioning the use on certain requirements and allowing revocation of the use if the conditions were violated. And, after Civil Code §1363.07 (now Civil Code §4600) was enacted allowing the board to grant exclusive use of nominal portions of the common areas to individual owners, the board passed a resolution making that grant to the top-story owners.

Plaintiff homeowner was not satisfied, and sued, arguing that the board had no authority to ignore a violation of the CC&Rs regulating common areas.

Held

For association. The court concluded that Lamden’s rule of judicial deference should apply to this decision Homeowner argued that Lamden does not protect a board that acts in contravention of its own governing documents (true) but the court concluded that the association’s governing documents afforded the board sufficient discretion to make the decision that it did.

*** End Summary ***

Harvey v. The Landing Homeowners Assn.

76 Cal.Rptr.3d 41 (2008)

43*43 Luke R. Corbett, Butz Dunn Desantis & Bingham, San Diego, CA, for Plaintiff and Appellant.

Kenneth H. Moreno, Scott J. Loeding, Murchison & Cumming, San Diego, CA, for Defendants and Respondents.

42*42 BENKE, J.

Plaintiff E. Miles Harvey appeals the judgment under Code of Civil Procedure section 437c for defendants (1) The Landing Homeowners Association, a California nonprofit mutual benefit corporation (LHA), (2) certain members of the board of directors (Board) of LHA, and (3) various residents of The Landing residing on the fourth floor of the condominium development (collectively defendants). Harveycontends the trial court erred when it granted summary judgment for defendants because: (a) the Board acted outside the scope of its authority when it determined fourth floor homeowners could exclusively use up to 120 square feet of inaccessible common area attic space, appurtenant to their units, for rough storage; (b) the Board lacked the power to make a material change in the restated declaration of restrictions (CC & R’s) for The Landing by allowing fourth floor homeowners to use the attic space common area for storage; and (c) the various resolutions passed by the Board, permitting use of that space for storage, were invalid because the Board vote lacked a disinterested majority.

We conclude the Board acted within its authority under the CC & R’s, and the undisputed evidence shows it properly exercised its discretion when it determined fourth floor homeowners could use up to 44*44 120 square feet of inaccessible attic space common area for storage. We further conclude the actions of the Board were not invalid because directors who owned units on the fourth floor of the project voted in favor of allowing limited exclusive use of the attic space common area. We therefore affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The Landing is a four-story, 92-unit condominium complex located in Coronado, California. On the fourth floor of The Landing, each of the 23 units has attic space adjacent to the units designated on the condominium plan as common area. The attic space common area is accessible only to the unit adjacent to it.

For many years, several fourth floor homeowners used the vacant attic space for storage. In mid-2002, a homeowner complained to the Board about that use, which prompted the Board to inspect the fourth floor units. Of the 23 units on the fourth floor, the Board discovered 18 of the homeowners were using between 50 and 288 square feet of the common area attic space for storage, with 10 homeowners using in excess of 120 square feet of that space as storage. In addition, one other fourth floor owner had converted a portion of the common area attic space into habitable living space.

After the inspections were completed, Harvey, who was then president of the Board, and two members of The Landing Architectural Review Committee (ARC) prepared a memorandum to the Board with the results of the inspection. The ARC memorandum recognized fourth floor homeowners had been using the attic space common area for at least 15 years, with many of these homeowners improving the space by adding features such as wallboard, lights, flooring, carpeting, closets, shelves and doors. The memorandum also recognized the homeowners’ use of the attic space was governed by Article IV, Section 12 of the CC & R’s, which provides:

“The Board shall have the right to allow an Owner to exclusively use portions of the otherwise nonexclusive Common Area, provided that such portions of the Common Area are nominal in area and adjacent to the Owner’s Exclusive Use Area(s) or Living Unit, and, provided further, that such use does not unreasonably interfere with any other Owner’s use or enjoyment of the Project.”

The ARC memorandum found the use of the attic space common area as storage by the fourth floor homeowners did not interfere with any other owner’s use or enjoyment of the project, and with one exception, the memorandum concluded the homeowners’ use of that space was “nominal” within the meaning of Section 12 of the CC & R’s. The ARC memorandum concluded by making several recommendations, including having the LHA enter into a license agreement with each of the fourth floor homeowners using the attic space common area.

The memorandum outlined the proposed terms of the license agreement, including, among other things, requiring the fourth floor homeowners to obtain insurance to cover their use of the attic space, preventing additional modifications or improvements to the space without written approval from the Board and imposing a one-time assessment of $350 to cover the costs and fees associated with the drafting and recording of the license agreement.

Harvey decided to meet with legal counsel regarding the fourth floor homeowners’ use of the attic space common area. Among other things, legal counsel opined the LHA lacked authority to “grant the 45*45 encroaching owners the `right’ to continue their use of the common area” because “using an attic for storage is not a nominal use.” Based on legal counsel’s report, at the next Board meeting Harvey requested the Board issue notices of violation under the CC & R’s to the 18 fourth floor homeowners using the attic space common area. When the Board refused, Harveyimmediately resigned as president of the LHA, although he remained a director on the Board.

The City of Coronado (City) became involved in the matter when, in response to a complaint by a disgruntled homeowner regarding the continued use of the attic space common area, it issued to the Board a notice of violation under the California Building Code. Several Board members, including Harvey, met with two building inspectors for the City. The inspectors advised the Board the attic space could be used for storage, but not living space. The Board agreed to provide monthly updates to the City regarding the Board’s progress in mitigating all aspects of the notice of violation.

At its next meeting, the Board voted four to one in support of a motion finding a violation of the CC & R’s and the building codes by the fourth floor homeowners using the attic space common area. During the meeting, the Board recognized its authority under the CC & R’s to permit a “homeowner to use a `nominal area’ of the common area provided it is adjacent to [the owner’s] unit and such use would not interfere with any one else’s use.” By the same vote in a renewed motion, the Board purportedly decided: (1) 120 square feet or less of the attic space common area could be used for “rough storage (example: boxes, Christmas decorations, luggage, etc.)”; (2) the homeowners would have to ask the Board for “permission” to use the 120 square feet for storage; and (3) this “resolution would also apply to storage space in the pillars that are located in the entrance to front patios.” The Board also agreed to hold a workshop for homeowners to “discuss ideas to organize the restoration of the units that have violations.”

As it turns out, the average size of the fourth floor living units is about 2,250 square feet. The Landing has approximately 265,479 square feet, which includes approximately 80,000 square feet of common area. The total area approved for attic storage for all fourth floor units combined is 2,760 square feet (e.g., 23 units x 120 square feet), or a little more than 1 percent of the total building area, or approximately 3.5 percent of the total common area.

The Board issued notices of violation to the fourth floor homeowners, telling them their use of the attic common area violated the CC & R’s and the California Building Code, directed them to restore the attic space to its original condition and advised them they could make a formal request to the Board for permission to use up to 120 square feet of common area for rough storage under certain conditions. In response to the notices of violation, several homeowners retained legal counsel who claimed those owners had obtained irrevocable rights to use the attic space that could not be disturbed by the Board.

To effectuate the Board’s resolution regarding the attic space common area, and to avoid litigation with the fourth floor homeowners, the Board prepared a standard “permission form” to be signed by those homeowners. Among other provisions, the form provided that the homeowner could use no more than 120 square feet of common area for rough storage only, that use of that space was subject to all provisions of The Landing Bylaws, the CC & R’s and governmental laws, rules and regulations, and that the Board reserved 46*46 the right to terminate its approval of such use “for cause.” In 2003 the Board unanimously approved the “permission form,” after myriad revisions, which included three votes by homeowners who did not live on the fourth floor.

The Board also took steps to ensure the LHA’s insurance coverage would not be affected by the fourth floor homeowners’ use of the attic space common area. The Board consulted the LHA’s insurance broker, who determined the “use of the fourth-floor common area attic space in The Landing for storage purposes has not impacted The Landing insurance coverage … and has not jeopardized the insurability of The Landing premises.” The Board also required each fourth floor homeowner seeking to use the attic space to obtain liability insurance coverage of $1 million.

The City continued to conduct periodic inspections of the fourth floor units to ensure full compliance with applicable laws and regulations. After an inspection in mid-2004, the City found no unit with storage exceeding 120 square feet, and further concluded the units in question were “in compliance with the Building and Fire Codes.” The City conducted another inspection of the subject units in late 2005 to ensure Fire Code compliance. The City’s report stated “[a]ll units that had storage were within the maximum allowance] of 120 square feet.” The report did note, however, some minor noncompliance items, and asked the LHA to contact the City when they were corrected.

Harvey requested the Board call a special meeting of the members of the LHA after the Board in mid-2005 amended the rules and regulations of the LHA to set forth the common areas determined by the Board to be appropriate for storage use. Under the rule change, residents of The Landing could not store property in the common area other than “in the garage storage lockers, or in cabinets installed in the pillars of entry patios, or in the attics of fourth-floor living units to the extent permitted by the Board….” The homeowners approved the rule change by a 56-to-7 vote.

The Board passed a resolution in 2006 transferring to the fourth floor owners the “exclusive right to use the common area attic space in that owner’s unit,” as allowed under newly-enacted Civil Code section 1363.07(a)(3)(E). The Board’s resolution provided:

“(a) all fourth floor common area attic space is accessible only from the inside of a condominium;

“(b) all fourth floor common area attic space is freely accessible only by the owner of the unit in which … it is located;

“(c) all fourth floor common area attic space is inaccessible to owners other than the owner of the unit in which it is located;

“(d) all fourth floor common area attic space is of no general use to the membership at large, but only to the owner of the unit in which it is located; and

“(e) the maintenance and management of fourth floor common area attic space is a burden to the [LHA] because such space is located inside of the condominium, is generally inaccessible to the membership, and is of little use or benefit to the [LHA].”

Harvey filed a lawsuit against defendants alleging causes of action for trespass, breach of fiduciary duty and injunctive relief. Defendants moved for summary judgment. The trial court granted the motion, finding the language of the CC & R’s, “grants the Board broad authority and discretion to determine 47*47 whether to allow an owner to exclusively use portions of the common area and this necessarily includes determining what portions are `nominal in area.'” The court found the Board acted within the scope of authority given to it under Article II, Section 2 of the CC & R’s “when it exercised its discretion in interpreting … [Section] 12 of the CC & R’s and its application to requests from homeowners to use their attic space.” The court deferred to the Board’s presumed expertise on the use of the attic space common area, based on undisputed evidence showing the “Board conducted a reasonable investigation, in good faith and with regards for the best interests of the community association and its members and exercised discretion within the scope of its authority.” The court also ruled directors who voted in favor of allowing limited use of the attic space common area had no conflict of interest with the LHA merely because they owned units on the fourth floor of the project, and, in any event, the vote of all the homeowners overcame any such potential conflict.

Finally, the court concluded Harvey’s trespass claim failed because the attic space common area was being used by the fourth floor homeowners with the Board’s express permission. Because no causes of action remained against defendants, the court concluded Harvey was not entitled to injunctive relief. In a separate hearing, the court awarded defendants costs of suit in the amount of $10,220.46, and attorney fees in the amount of $116,794.30.[1]

I

DISCUSSION

A. Applicable Law and Standard of Review

CC & R’s are interpreted according to the usual rules for the interpretation of contracts generally, with a view toward enforcing the reasonable intent of the parties. (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 380-381, 33 Cal.Rptr.2d 63, 878 P.2d 1275(Nahrstedt); 14859 Moorpark Homeowner’s Assn. v. VRT Corporation (1998) 63 Cal.App.4th 1396, 1410, 74 Cal.Rptr.2d 712.) Where, as 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. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866, 44 Cal.Rptr. 767, 402 P.2d 839.)

The language of the CC & R’s governs if it is clear and explicit, and we interpret the words in their ordinary and popular sense unless a contrary intent is shown. (Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19 Cal.App.4th 824, 829, 23 Cal.Rptr.2d 744; see also Civ.Code, § 1644.)[2] The parties’ intent is to be ascertained from the writing alone if possible. (WYDA Associates v. Merner(1996) 42 Cal.App.4th 1702, 1709, 50 Cal.Rptr.2d 323.) If an instrument is capable of two different reasonable interpretations, the instrument is ambiguous. (Badie v. Bank of America (1998) 67 Cal. App.4th 779, 798, 79 Cal.Rptr.2d 273.) In that instance, we interpret the CC & R’s to make them lawful, operative, definite, 48*48 reasonable and capable of being carried into effect, and must avoid an interpretation that would make them harsh, unjust or inequitable. (Civ.Code, § 1643;[3] see also Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 961,135 Cal.Rptr.2d 505.)

B. The CC & R’s

The issue here concerns the interpretation of the LHA CC & R’s, including the language “nominal in area” in Article IV, Section 12 in connection with an owner’s exclusive use of the attic space common area.

Article II, Section 2 of the CC & R’s provides in part:

“[T]he activities and affairs of the [LHA] shall be managed and all corporate powers shall be exercised by and under the ultimate direction of the Board. [¶] Except as may be otherwise provided herein, the [LHA] acting through the Board and officers shall have the sole and exclusive right and duty to manage, operate, control, repair, replace or restore all of the Common Area or any portion thereof, together with the improvements….”

Article II, Section 3 provides in part:

“The Board shall have the right to adopt reasonable rules and regulations not inconsistent with the provisions contained in [these CC & R’s], and to amend the same from time to time relating to the use of the Common Area and the recreational and other facilities situated thereon by Owners and by their lessees or invitees….”

Article IV, Section 11 of the CC & R’s provides in part:

“No part of the Common Area shall be obstructed so as to interfere with its use for the purposes herein above permitted, nor shall any part of the Common Area be used for storage purposes (except as incidental to one of such permitted uses, or for storage of maintenance equipment used exclusively to maintain the Common Area or in storage areas designated by the Board).” (Emphasis added.)

As noted above, Article IV, Section 12 of the CC & R’s gives the Board authority to allow an owner to use exclusively common area provided such use is “nominal in area” and adjacent to the owner’s exclusive use area or living unit, and “provided further, that such use does not unreasonably interfere with any other Owner’s use or enjoyment of the Project.”

The CC & R’s make clear the Board has the “sole and exclusive” right to “manage” the common area (Art. II, § 2); to “adopt reasonable rules and regulations not inconsistent with the provisions contained in [the CC & R’s]” relating to that use (Art. II, § 3); to designate portions of the common area as “storage areas” (Art. IV, § 11); and to authorize it to allow an owner to use exclusively portions of the common area “nominal in area” adjacent to the owner’s unit, provided such use “does not unreasonably interfere with any other owner’s use or enjoyment of the project.”[4](Art. IV, § 12.)

49*49 C. The Rule of Judicial Deference Applies to the Board’s Decision Allowing Fourth Floor Homeowners to Use up to 120 Square Feet of Inaccessible Attic Space Common Area for Rough Storage

Harvey contends the grant of summary judgment was improper because the Board “had no discretion to overrule or modify the mandate of Art. IV, § 11 that the common area shall not be used for storage.” Harvey relies on Nahrstedt, supra, 8 Cal.4th 361, 33 Cal.Rptr.2d 63, 878 P.2d 1275, to support his position.

In Nahrstedt, the Supreme Court addressed the validity of a pet restriction under Civil Code section 1354, subdivision (a) contained in the CC & R’s prohibiting residents from keeping all animals (including cats and dogs) in their units except “domestic fish and birds.” (Nahrstedt, supra, 8 Cal.4th at p. 369, fn. 3, 33 Cal. Rptr.2d 63, 878 P.2d 1275.) Under Civil Code section 1354, subdivision (a), use restrictions in CC & R’s are “enforceable equitable servitudes, unless unreasonable….” The Nahrstedt court concluded section 1354’s presumption of reasonableness could only be overcome if the party challenging the restriction could prove the restriction: (1) “violates public policy”; (2) “bears no [reasonable] relationship to the protection, preservation, operation or purpose of the affected land”; or (3) “otherwise imposes burdens on the affected land that are so disproportionate to the restriction’s beneficial effects that the restriction should not be enforced.” (Nahrstedt, supra, 8 Cal.4th at pp. 380-382, 33 Cal. Rptr.2d 63, 878 P.2d 1275.) Applying that standard to the facts before it, the court in Nahrstedt held a complete ban on animals was not unreasonable and was therefore enforceable under Civil Code section 1354. (Nahrstedt, supra, 8 Cal.4th at p. 386, 33 Cal.Rptr.2d 63, 878 P.2d 1275.)

Harvey further argues the trial court erred when it relied on the other “leading Supreme Court case[ ] concerning condominium homeowner associations,” Lamden v. La Jolla Shores Clubdominium Homeowners Ass’n (1999) 21 Cal.4th 249, 87 Cal.Rptr.2d 237, 980 P.2d 940 (Lamden). There, an owner sued the condominium community association for injunctive and declaratory relief, claiming the board of directors of the community association caused her unit to decrease in value because of the board’s decision to spot-treat rather than fumigate plaintiffs unit for termite infestation. (Id. at p. 253, 87 Cal. Rptr.2d 237, 980 P.2d 940.) In affirming the board’s action, the court concluded, “[w]here a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.” (Ibid.)

The Lamden court thus adopted a “rule of judicial deference to community association board decision making,” which “affords homeowners, community associations, courts and advocates a clear standard for judicial review of discretionary economic decisions by community association boards, mandating a degree of deference to the latter’s business judgments sufficient to discourage meritless litigation, yet at the same time without either eviscerating the long-established duty to guard against unreasonable risks to residents’ personal safety owed by associations that `function as a landlord in maintaining the common areas’ [citation] or modifying the enforceability of a common 50*50 interest development’s CC & R’s [citations].” (Lamden, supra, 21 Cal.4th at pp. 253, 270, 87 Cal.Rptr.2d 237, 980 P.2d 940.)

Harvey contends the trial court here erred when it relied on Lamden, and notNahrstedt, asserting Lamden is distinguishable from the present case because the issue in Lamden involved the court’s review of a discretionary matter—maintenance and repair of a common area in connection with termite, control, whereas the issue here involves the “enforcement of the plain language of the governing documents.”Harvey thus argues “Lamden does not provide defendants support for their contention that the board of directors [of the LHA] had authority and discretion to override the prohibition in the CC & R’s against using common area for storage…. Lacking that discretion, defendants’ evidence regarding the reasonableness of their investigation, and the fairness of their decision to authorize the use of up to 120 square feet of the common area for storage, is beside the point.”

The CC & R’s do not, however, provide a blanket prohibition against the use of common area for storage, as Harvey suggests. Section 11 of Article IV expressly allows the Board to designate storage areas in the common area. Section 12 of Article IV further gives, the Board the authority and discretion to allow an owner to use exclusively the common area provided certain conditions are met, including the conditions the use be “nominal” and the use not “unreasonably interfere with any other Owner’s use or enjoyment of the Project.” The CC & R’s further grant the Board the exclusive right to manage, operate and control the common areas of the condominium development, providing additional support for the Board’s decision to interpret the CC & R’s to allow up to 120 square feet of attic space common area to be used as storage area. (See Art. II, §§ 2 and 3.)

Unlike the situation in Nahrstedt where the challenged provision in the CC & R’s did not afford the board of the community association with any discretion (e.g., prohibiting all animals except “domestic fish and birds”), here the challenged provisions (Art. IV, §§ 11 and 12) provide the Board with the authority and discretion to allow fourth floor homeowners to use, under certain conditions, portions of the common area for rough storage. We thus conclude Lamden, and not Nahrstedt,governs here.[5]

Under the “rule of judicial deference” adopted by the court in Lamden, we defer to the Board’s authority and presumed 51*51 expertise regarding its sole and exclusive right to maintain, control and manage the common areas when it granted the fourth floor homeowners the right, under certain conditions, to use up to 120 square feet of inaccessible attic space common area for rough storage.[6] The undisputed evidence in the record shows the Board conducted an investigation in 2002 regarding homeowners’ use of the fourth floor attic space, which had been ongoing for approximately 15 years; met with officials from the City to ensure the use of the attic space complied with building codes; consulted its insurance broker, who determined the “use of the fourth floor common area attic space in The Landing for storage purposes has not impacted The Landing insurance coverage, has not increased the premiums for The Landing condominium policy, and has not jeopardized the insurability of The Landing premises”; agreed to conduct a “workshop” for homeowners to “discuss ideas to organize the restoration of the units that have violations”; prepared and revised a standard “permission form” signed by each fourth floor homeowner to ensure compliance with all provisions of The Landing Bylaws, the CC & R’s and governmental laws, rules and regulations; required each fourth floor homeowner seeking to use the attic space to obtain liability insurance coverage of $1 million; took steps to correct some minor noncompliance items discovered by the City in 2005 during the City’s annual inspection of the subject units to ensure Fire Code compliance; called a special election of all owners of The Landing to determine whether the Board should permit homeowners to use the fourth floor attic space common area for rough storage; and passed a resolution in 2006 transferring to the fourth floor owners the “exclusive right to use the common area attic space in that owner’s unit,” as purportedly allowed under newly-enacted Civil Code section 1363.07(a)(3)(E).

This undisputed evidence shows the Board, “upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members,” properly exercised its discretion within the scope of the CC & R’s when it determined the fourth floor homeowners could use exclusively up to 120 square feet of inaccessible attic space common area as rough storage.[7]

52*52 D. Summary Judgment Was Properly Granted onHarvey’s Fourth Cause of Action for Breach of Fiduciary Duty Against the Fourth Floor Directors

Breach of duty is usually a fact issue for the jury. (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 150, 65 Cal. Rptr. 406.) Breach may be resolved as a matter of law, however, if the circumstances do not permit a reasonable doubt as to whether the defendant’s conduct violates the degree of care exacted of him or her. (Ibid.)

Harvey contends summary judgment was improper as to his fourth cause of action for breach of fiduciary duty against certain interested directors because a triable issue of fact exists regarding whether those directors breached that duty to the LHA. Harvey argues the resolutions passed by the Board in 2002, 2003, 2004, 2005 and 2006, authorizing the limited or “nominal” use for storage of inaccessible fourth floor attic space in the common area, were invalid under Corporations Code section 7233 because “[i]n each instance the resolution failed to get the required three votes for adoption unless the votes of directors owning a unit on the fourth floor were counted.” To support this contention, Harvey asserts a trier of fact “could easily find defendants’ actions in authorizing the use of the attic space for storage were a thinly veiled maneuver to get themselves a valuable asset.”

However, under Corporations Code section 7233, subdivision (a)(3), a director of a nonprofit mutual benefit corporation may enter into a contract or transaction with the corporation if “the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified.”[8] Courts have interpreted the phrase “authorized, approved or ratified” in the nearly identical provision applicable to general corporation law (Corp.Code, § 310, subd. (a)(3))[9] to address the situation where board approval was based on a vote by an interested director (e.g., here, directors who voted in favor of allowing the attic space to be used for rough storage). (Sammis v. Stafford (1996) 48 Cal. 53*53 App.4th 1935, 1943, 56 Cal.Rptr.2d 589 (Sammis).) “If [the] phrase `authorized, approved or ratified’ was construed to mean only those approvals made without the interested director’s vote, then [Corporations Code section 7233, subdivision (a)(3)] would be unnecessary. Section [7233(a)(2)] and section [7233(a)(3)] both permit interested director transactions where the board of directors approves the transaction. The sections differ, however, depending on whether the approval was obtained with or without the interested director’s vote and whether there was full disclosure. Where a disinterested majority approves the transactions and there was full disclosure, section [7233(a)(2)] applies, and the burden of proof is on the person challenging the transaction. [Citation.] Where, however, the approval was not obtained from a disinterested board vote, section [7233(a)(3)] applies and requires the person seeking to uphold the transaction to prove it was `just and reasonable’ to the corporation.” (Ibid.)

We conclude no conflict of interest existed here. As a threshold matter, there is no evidence in the record to support Harvey’s argument the fourth floor directors obtained a “material financial interest,” as required under Corporations Code section 7233, subdivision (a), when they voted in favor of allowing the attic space common area to be used for storage.[10] (See In re Hochberg (1970) 2 Cal.3d 870, 875, 87 Cal.Rptr. 681, 471 P.2d 1 [“`It is elementary that the function of an appellate court, in reviewing a trial court judgment on direct appeal, is limited to a consideration of matters contained in the record of trial proceedings, and that “[m]atters not presented by the record cannot be considered on the suggestion of counsel in the briefs”‘”].)

Moreover, aside from whether the fourth floor directors obtained a “material financial benefit” under Corporations Code section 7233, subdivision (a), we nonetheless conclude subdivision (a)(2) and (a)(3) apply to validate the Board resolutions challenged by Harvey approving the use of the fourth floor attic space common area. Under subdivision (a)(2) of Corporations Code section 7233, where a disinterested majority approves the contract or transaction and there is full disclosure, the action of the board of the mutual benefit corporation is valid. Here, the evidence is undisputed in May 2003 the Board voted five to zero, which included three votes by directors who did not own a unit on the fourth floor, to approve the “permission form” adopted by the Board setting forth the terms and conditions of the fourth floor homeowners’ use of the fourth floor attic space common area for storage. The permission form expressly stated the homeowners could use up to 120 square feet of that space.[11]

54*54 In light of the undisputed evidence in the record, and our deference to the Board’s exercise of discretion in determining the use of up to 120 square feet of fourth floor attic space for storage constitutes a “nominal” use, we have little difficulty concluding the material facts of the transaction were fully disclosed and/or known to the Board at the May 2003 meeting, when it approved the “permission form” allowing the use of that inaccessible common area. We further conclude this same undisputed evidence shows the transaction to be “just and reasonable” to the LHA, and Harvey has not met his burden to show otherwise.

Finally, we conclude the actions of the Board in connection with this storage issue were also valid under subdivision (a)(3) of Corporations Code section 7233, which applies to a vote of interested directors. (Sammis, supra, 48 Cal.App.4th at p.1943, 56 Cal.Rptr.2d 589 [subdivision (a)(3) governs when approval was not obtained from a disinterested board vote].) According to Harvey, when the Board voted at meetings on December 17, 2002, April 16, 2003, July 15, 2003, April 21, 2004, July 20, 2005, and January 1, 2006, to authorize the “nominal” use of the fourth floor attic space common area for rough storage, it lacked a disinterested majority. The burden then shifted to the person seeking to uphold the validity of the transaction to prove it was “just and reasonable as to the corporation” at the time it was “authorized, approved or ratified.” (Corp. Code, § 7233, subd. (a)(3); Sammis, supra, 48 Cal.App.4th at p.1943, 56 Cal. Rptr.2d 589.) Based on the undisputed evidence, we conclude defendants met their burden to show the “transaction” between the interested directors and the LHA was “just and reasonable” to the LHA when the Board voted at the various meetings to approve the “nominal” use of the fourth floor attic space for rough storage, and Harvey has adduced no evidence to show otherwise.

DISPOSITION

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

WE CONCUR: McCONNELL, P.J., and McINTYRE, J.

[1] Harvey has not appealed the award of costs and attorney fees in favor of defendants.

[2] Civil Code section 1644 provides: “The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.”

[3] Civil Code section 1643 provides: “A contract must receive such [an] interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.”

[4] Because it is undisputed the attic space common area is accessible only to the unit adjacent to that area, there is no dispute here that the fourth floor homeowners’ use of the attic space common area “unreasonably interfere[s] with any other owner’s use or enjoyment of the Project.”

[5] In Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863, 875, 63 Cal. Rptr.3d 514, this court applied Lamden’s rule of judicial deference to community board decision-making not involving “ordinary maintenance decisions,” observing Lamden “also reasonably stands for the proposition that the [community association] had discretion to select among means for remedying violations of the CC & R’s without resorting to expensive and time-consuming litigation….” Although the instant case, like Haley, also does not involve a per se maintenance decision, we nonetheless conclude the reasoning of Lamden applies here as well, where the evidence shows the Board, after undertaking a reasonable investigation and acting in the best interests of the LHA, made a “detailed and peculiar economic decision[ ]” allowing fourth floor homeowners to use up to 120 square feet of inaccessible attic space common area for rough storage. (Lamden, supra, 21 Cal.4th at p. 271, 87 Cal.Rptr.2d 237, 980 P.2d 940; see also Nahrstedt, supra, 8 Cal.4th at p. 374, 33 Cal.Rptr.2d 63, 878 P.2d 1275[“[g]enerally, courts will uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with public policy”].)

[6] Although, under Lamden, we defer to the Board’s authority and expertise regarding the “nominal” use of the common area for storage, we note the total area approved for attic storage for all fourth floor units combined is 2,760 square feet (e.g., 23 units × 120 square feet), or a little more than 1 percent of the 265,479 total building area, or approximately 3.5 percent of the approximately 80,000 total square feet common area. As a matter of contract interpretation under our independent standard of review, we have little difficulty concluding the use for storage of up to 120 square feet of inaccessible attic space constitutes a “nominal” use of the common area within the meaning of Article IV, Section 12.

[7] Because we conclude the Board acted within its authority under the CC & R’s and defer, based on the undisputed evidence in the record, to the Board’s economic decision to allow the homeowners to make limited or “nominal” use of the inaccessible fourth floor attic space, we further conclude summary judgment was properly granted on Harvey’s first cause of action for trespass against the defendant homeowners. (See Civic Western Corp. v. Zila Industries, Inc. (1977) 66 Cal. App.3d 1, 16-17, 135 Cal.Rptr. 915 [“Where there is a consensual entry [on the property of another], there is no [trespass], because lack of consent is an element of the wrong”].) For similar reasons, Harvey’s fifth cause of action for injunctive relief, which seeks to enjoin the fourth floor homeowners from using the attic space common area, was also properly disposed of on summary judgment.

[8] Section 7233 provides: “(a) No contract or other transaction between a corporation and one or more of its directors, or between a corporation and any domestic or foreign corporation, firm or association in which one or more of its directors has a material financial interest, is either void or voidable because such director or directors or such other corporation, business corporation, firm or association are parties or because such director or directors are present at the meeting of the board or a committee thereof which authorizes, approves or ratifies the contract or transaction, if: (1) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the members and such contract or transaction is approved by the members (Section 5034) in good faith, with any membership owned by the interested director not being entitled to vote thereon; (2) The material facts as to the transaction and as to such director’s interest are fully disclosed or known to the board or committee, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested director or directors and the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified; or (3) As to contracts or transactions not approved as provided in paragraph (1) or (2) of this subdivision, the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved or ratified.”

[9] Indeed, the general corporation law is the source of the nonprofit corporation law. (See Frances T.v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 525, 229 Cal.Rptr. 456, 723 P.2d 573.)

[10] The term “material financial interest” is not defined in the code. However, courts generally find such an interest when a person has an expectation of pecuniary gain. (See, e.g., Michael v. Aetna Life & Casualty Ins. Co. (2001) 88 Cal.App.4th 925, 942-943, 106 Cal. Rptr.2d 240.) Harvey claims use of the attic space common area for storage is a “valuable asset,” but this is not the test under Corporations Code section 7233, subdivision (a). Moreover, several of the directors of the LHA who reside on the fourth floor may question whether their use of the common area attic space is a “valuable asset,” particularly after being named by Harvey as defendants in this lawsuit.

[11] It is not entirely clear from the record which of the various drafts, if any, of the permission form included in the record ultimately became the “final” form approved and used by the Board. (See, e.g., Exhibits R, S, T, U and V.) For present purposes, however, it matters little, inasmuch as in each of the drafts the Board specifically noted the homeowners could use as rough storage up to 120 square feet of the fourth floor attic space appurtenant to their units.

 

Keywords: Business Judgment Rule, Judicial Deference Rule, Lamden Rule

Franklin v. Marie Antoinette Condominium Owners Assn.

Franklin v. Marie Antoinette Condominium Owners Association

19 CA4th 824

Summary by Mary M. Howell, Esq.:

Fact

Common area pipes in a highrise condominium project leaked, allowing water intrusion and damage to an owner’s unit. Owner sued association for breach of the duty to maintain and for negligence. The association countered by arguing that the association had not been negligent because it was involved in repairs when the damage occurred, and further, that it was protected from liability for breach of the CC&R-imposed duty to maintain the pipes by virtue of an “exculpatory clause” contained in the CC&Rs, which protected the association from liability for failures of the common elements unless the association had acted in a grossly negligent manner. The jury found that the association had not acted negligently, but that it had breached the duty to maintain. Association appealed.

Held

For association. While exculpatory clauses are not favored, they will be enforced by a court when they do not relieve the association of the duty to maintain common elements (which would contravene public policy) but instead shield it from liability for damages arising from damage, at least when the damage is not due to any negligence on the part of the association. Because the jury had found the association NOT negligent, the court did not need to address the question of whether a clause which relieved the association of liability in case of negligence would be enforceable as well.

*** End Summary ***

Franklin v. Marie Antoinette Condominium Owners Assn.

19 Cal.App.4th 824 (1993)

825*825 COUNSEL

Schlegel, Stone & Manning, Michael H. Manning, Brian G. Hummel, Horvitz & Levy, Daniel J. Gonzalez, Richard L. Hasen and Gerald M. Serlin for Defendant and Appellant.

Greenberg, Glusker, Fields, Claman & Machtinger and Jeffrey Spitz for Plaintiff and Respondent.

OPINION

ORTEGA, J.

This appeal concerns an exculpatory clause contained in the declaration of covenants, conditions and restrictions (CC&R’s) governing the relationship between an association of condominium homeowners and the condominium owners. If applied to this case, the exculpatory clause will relieve the association of its contractual liability to pay the plaintiff condominium owner for water damage to her unit caused by a central plumbing 826*826 leak. We reverse the judgment with directions to enter judgment for the defendant association.

I

FACTS AND PROCEDURAL BACKGROUND

The condominium project, known as the Marie Antoinette Tower (the Tower), is a 16-floor residential building on Wilshire Boulevard near Westwood Village in Los Angeles. The Tower was originally built as apartments in 1962, and was converted to condominiums in 1978.

Defendant Marie Antoinette Condominium Owners Association, Inc. (the Association), a nonprofit corporation duly organized and existing under California law (see Civ. Code, § 1363) (unless otherwise indicated, all further statutory references are to the Civil Code), is comprised of all Tower condominium owners. The CC&R’s provide that the owners own the Tower’s common area as tenants in common. (See §§ 1351, subds. (b) and (f), 1362.) The CC&R’s further provide that the Association is responsible for maintaining and repairing the common area, and the owners are responsible for maintaining and repairing their individual units. (See § 1364, subd. (a).)[1]

In 1984, plaintiff Florence Franklin purchased a condominium in the Tower. After painting and remodelling her unit by installing new hardwood floors, crown and base moldings, bathroom fixtures, doors and frames, plaintiff moved into the Tower in March 1985.

The water damage to plaintiff’s hardwood floors became apparent in mid-1986 beginning with a small area at the threshold leading from the hallway to the master bedroom. The damage later spread to other parts of the floor.[2] 827*827 The moisture underneath the floorboards caused the wood to rise, swell or buckle.[3]

Plaintiff notified the Tower’s manager about the water damage to her hardwood floors in mid-1986. The manager told plaintiff the damage was caused by a leak beneath the sink in her master bedroom bathroom and was her sole responsibility. After the manager reported his opinion on plaintiff’s claim to the Association’s board (the Board), the Board asked the Association’s insurer to send out an investigator.[4]

After receiving the insurance investigator’s report of “no evidence of [a] central plumbing breakdown,” the Board decided “it would be inappropriate to either make an offer to pay [plaintiff’s] claim … or to have [the Association’s] insurance company process” plaintiff’s claim.

Plaintiff filed suit against the Association in February 1987, alleging its failure to maintain and repair the central plumbing had caused water damage to her hardwood floors.

During this period, the Association was repairing various leaks in the Tower’s plumbing system as they occurred. By about mid-1987, most of the Board members (including plaintiff, who served on the Board from early summer 1985 through August 1987) realized the building’s rusting steel pipes needed replacement. Eventually, the Board successfully lobbied a majority of the owners to obtain approval of a special assessment of approximately $20,000 per owner to repipe the Tower’s plumbing system and renovate the heating and air conditioning system.[5] The replacement and repairs were completed in 1990.

828*828 This case was tried in July 1991 without a jury on three causes of action: breach of contract, negligence, and nuisance.[6]

The parties presented conflicting expert opinion testimony on causation. The Association’s witnesses attributed the water damage to a leak under the sink in plaintiff’s master bedroom bathroom. Plaintiff’s witnesses, on the other hand, attributed the water damage to a leak in the central plumbing system.

The trial court found the damage was caused by a leak in the central plumbing system. The court concluded the system had deteriorated to the point of constituting a breach of the contractual duty to maintain and repair the common area, but not to the point of constituting a nuisance or establishing negligence on the part of the Association. The court found for plaintiff on her breach of contract claim only. The court entered judgment for plaintiff awarding her damages of $74,015 and costs and attorney fees of $169,315.30. Defendant Association has appealed.

II

BREACH OF CONTRACT

(1) The Association contends, as it did at trial, that plaintiff’s cause of action for breach of contract is barred by the exculpatory clause contained in the CC&R’s.

Preliminarily, we note the parties assume the CC&R’s formed a contract between the Association and the condominium owners. (See Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 512 [229 Cal. Rptr. 456, 723 P.2d 573, 59 A.L.R.4th 447], which discussed a condominium owner’s breach of contract allegation without expressly deciding whether CC&R’s constitute a contract between the association and the owners. See also Sproul & Rosenberry, Advising Cal. Condominium and Homeowners Associations (Cont.Ed.Bar 1991) § 6.43, pp. 295-297, which cites cases in other jurisdictions which have refused to treat CC&R’s as contracts between the owners and the association under different fact situations.)

Although the CC&R’s require the Association to maintain and repair the common area (see § 1364, subd. (a)), the CC&R’s do not require the 829*829 Association to reimburse a condominium owner for property damage caused by a central plumbing leak which occurred in the absence of negligence by the Association. The CC&R’s contain an exculpatory clause which states in relevant part: “[T]he Association … shall [not] be liable for … damage to … property in the project … resulting from … water … which may leak or flow from outside of any unit or from any part of the building, or from any pipes, drains, conduits, appliances or equipment or from any other place or cause, unless caused by the gross negligence of … the Association, its Board, officers, the manager or his staff.”[7]

In ascertaining the parties’ intent, we are guided by the following principles. “The language of the instrument must govern its interpretation if it is clear and explicit. [Citation.] Generally, the words of a contract are to be understood in their ordinary and popular sense [citations] unless a contrary intent is shown, such as a specialized meaning due to trade custom and practice or a prior course of dealing [citations]. [¶] The interpretation of a written contract is solely a judicial function unless the interpretation turns on the credibility of extrinsic evidence. [Citations.]” (Appalachian Ins. Co. v. McDonnell Douglas Corp., supra, 214 Cal. App.3d at p. 11.)

On appeal, neither party contends the exculpatory clause is ambiguous or that its interpretation turns on the credibility of extrinsic evidence. Both parties assume the exculpatory clause, if enforced according to its terms, relieves the Association of any contractual liability to pay for property damage to plaintiff’s floors caused by a leak in the common plumbing system.

Plaintiff contends the exculpatory clause is unenforceable, however, because it affects the public interest.[8] Plaintiff relies primarily upon Cohen v. Kite Hill Community Assn. (1983) 142 Cal. App.3d 642 [191 Cal. Rptr. 209], a 830*830 suit between homeowners and a homeowners association.[9] In Cohen, the court held plaintiffs’ cause of action (for breach of the duty to act in good faith and to avoid arbitrary decisions in applying the CC&R’s) was not barred by the exculpatory clauses contained in the CC&R’s. We quote at length the passages from Cohenwhich plaintiff contends are applicable to this case:

“The law has traditionally viewed with disfavor attempts to secure insulation from one’s own negligence or wilful misconduct, and such provisions are strictly construed against the person relying on them, particularly where such person is their author. [Citations.] Here, the Association is the creation and successor of the author, S & S Construction Company, and therefore subject to this rule of strict construction.[[10]]

831*831 “Furthermore, it is the express statutory policy of this state that `[a]ll contracts which have for their object, directly or indirectly, to exempt any[]one from the responsibility for his own fraud[,] or willful injury to [the] person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.’ (Civ. Code, § 1668.)

“This public policy applies with added force when the exculpatory provision purports to immunize persons charged with a fiduciary duty from the consequences of betraying their trusts. [Citations.]

“Moreover, the California Supreme Court has evinced a clear policy of enforcing only those exculpatory provisions which do not affect `the public interest.’ (Tunkl v.Regents of the University of California (1963) 60 Cal.2d 92, 96….) Factors to be considered in determining whether a business or transaction affects a public interest include: (a) whether the matter is suitable for public regulation; (b) whether the party provides a service of importance to the public; (c) whether the party invoking it possesses a bargaining advantage against any member of the public who seeks such service; (d) and whether one party is particularly subject to the other’s control and the risk of his or her carelessness. (Id., at pp. 98-101.)

832*832 “Applying one or more of these criteria, the courts have invalidated exculpatory clauses invoked by banks (Hiroshima v. Bank of Italy (1926) 78 Cal. App. 362 …;Vilner v. Crocker National Bank (1979) 89 Cal. App.3d 732 …), hospitals (Tunkl v.Regents of the University of California, supra, 60 Cal.2d 92; Westlake Community Hosp. v. Superior Court (1976) 17 Cal.3d 465 …), and apartment complexes (Henrioulle v. Marin Ventures, Inc. (1978) 20 Cal.3d 512 …).

“For the reasons earlier stated, we view the Association of homeowners as occupying a particularly elevated position of trust because of the many interests it monitors and services it performs. Therefore, we hold that the exculpatory provisions contained in the Declaration constitute no bar to suit against the Association.” (Cohen v. Kite Hill Community Assn., supra, 142 Cal. App.3d at pp. 654-655.)

Plaintiff contends this case “presents almost an identical situation to that before the court in Cohen.” The exculpatory clauses in Cohen, however, purported to relieve the association of its responsibility to adhere to the architectural standards set forth in the CC&R’s. As the court in Cohen recognized, the issue there was “whether the exculpatory clauses effectively cancelled out that duty and thereby immunized the Association from suit.” (Cohen v. Kite Hill Community Assn., supra, 142 Cal. App.3d at p. 654.)

Here, on the other hand, the Association will be required to maintain the common area whether or not it is liable for breach of contract damages in this case. Enforcing the exculpatory clause in this case will not relieve the Association of its statutory duty to maintain and repair the common area. (§ 1364, subd. (a).) Moreover, a condominium owner may enforce the CC&R’s under the law of equitable servitudes without resorting to a breach of contract cause of action. (§ 1354; see Sproul & Rosenberry, Advising Cal. Condominium and Homeowners Associations, supra, § 6.43, p. 297.)[11]

Although the exculpatory clause purports to provide immunity from negligence liability, that is now a moot issue due to the trial court’s finding of 833*833 no negligence. Plaintiff’s dire prediction that enforcing the exculpatory clause in this case “would place every condominium owner at the mercy of their homeowners’ association, which would be free to disregard its obligations with impunity” is simply unfounded. This is not an action for declaratory relief to establish the extent of the Association’s immunity from liability under the exculpatory clause. Accordingly, we need not decide whether the release from negligence liability is valid.[12]

The narrow issue before us is whether the nonnegligent Association may contractually shift the risk of loss to the condominium owner, who may look only to the insurance proceeds for her recovery against the Association.[13]

Although plaintiff disputes the merits of the exculpatory clause, we find this contractual allocation of risk to be reasonable and fair to the condominium owners as a whole. Here, the condominium owners voluntarily agreed to bear the risk of loss and limit their recovery against the nonnegligent Association to that which is recoverable under the insurance policy. Any condominium owner who desires to purchase additional insurance may do so.

By reducing the Association’s risk of liability, the condominium owners have reduced their own risk. The condominium owners are, after all, the ones who are assessed to pay for improvements, insurance premiums, liability judgments not covered by insurance, and the like. Plaintiff is only one of many owners who collectively entered into the contract (CC&R’s) with the Association. A reasonable and fair reduction of the Association’s risk which mutually benefits the condominium owners as a whole does not suddenly become violative of public policy upon the nonnegligent infliction of property damage to an individual unit. While plaintiff may bear the loss in this case, she may benefit in the next. As was pointed out by our Supreme Court, “no public policy opposes private, voluntary transactions in which one party, for a consideration, agrees to shoulder a risk which the law would 834*834 otherwise have placed upon the other party….” (Tunkl v. Regents of University of California (1963) 60 Cal.2d 92, 101 [32 Cal. Rptr. 33, 383 P.2d 441, 6 A.L.R.3d 693].)

In discussing the somewhat related “question of the individual unit owner’s tort liability in cases arising in the common areas,” Presiding Justice Roth suggested that insurance taken out by the association for the protection of the condominium owners provides “[o]ne practical answer.” (White v. Cox (1971) 17 Cal. App.3d 824, 832 [95 Cal. Rptr. 259, 45 A.L.R.3d 1161] (conc. opn. of Roth, P.J.).) Presiding Justice Roth further reflected: “It might then be argued depending on the terms of the written declaration between unit owners that, at least as between suing and defendant unit owners, the maximum amount of liability of defendant unit owners has been contractually limited to the maximum of the insurance taken out by the association.” (Ibid.) We believe this sound reasoning carries equal force when applied to the question of the nonnegligent Association’s ability to avoid contractual liability for property damage caused by a central plumbing leak.

The Association, unlike commercial or residential landlords in business to make a profit, is a nonprofit corporation. (See Sproul and Rosenberry, Advising Cal. Condominium and Homeowners Associations, supra, § 6.4, pp. 250-251.) As the trial court pointed out below in its statement of decision, the Board “was made up of unpaid volunteers from among the owners of condominiums in the building, who despite the strict contractual obligations of the CC&Rs did their conscientious best to attend to the problems and complaints that came to them. To effectuate major and expensive repairs as ultimately transpired with the repiping of the building, the Board of the Association needed the approval of a majority of the condominium owners in the building. To accomplish this critical requirement, they literally had to politic and campaign. These volunteers were not professionals in the skills of building management and maintenance, and their efforts while perhaps less than proficient, are not demonstrative of individual or group negligence.”

The Legislature recognized the need to provide immunity under appropriate conditions to the individual volunteer board members who manage residential condominiums. (§ 1365.7.) The exculpatory clause in this case takes the additional reasonable step of providing immunity under appropriate conditions to the Association. We conclude the exculpatory clause does not, as applied to this case, violate public policy.

835*835 DISPOSITION

We reverse the judgment and direct the trial court to enter judgment for the defendant. Defendant is awarded costs on appeal.

Spencer, P.J., and Vogel (Miriam A.), J., concurred.

[1] “Unless otherwise provided in the declaration of a common interest development, the association is responsible for repairing, replacing, or maintaining the common areas, other than exclusive use common areas, and the owner of each separate interest is responsible for maintaining that separate interest and any exclusive use common area appurtenant to the separate interest.” (§ 1364, subd. (a).)

[2] The damage was first noticed while plaintiff was away on a four-month vacation in mid-1986. During her absence, the daughter of a friend (Anderson) stayed in the condominium. Anderson discovered a leak beneath the sink in the master bedroom bathroom, which she reported to the Tower doorman and had repaired. About six weeks later, Anderson began to notice some raising, swelling or buckling of the floorboards, beginning with the area at the threshold leading from the hallway to the master bedroom. After plaintiff returned from her vacation, the damage began to spread to other parts of the floor.

[3] In addition to the floors, plaintiff’s complaint listed other areas that were damaged. In November 1986 the interior condominium walls, crown moldings, base moldings, doors and kitchen cabinets began cracking or warping. In December 1986 water began leaking from the heating and air conditioning vents into plaintiff’s condominium, which she testified did not receive adequate heating or cooling. The trial court’s statement of decision did not, however, mention the damaged walls, moldings, doors, cabinets, leaking vents, and faulty heating and air conditioning. The statement of decision mentioned only the damaged floors. Accordingly, we will limit our discussion in this opinion to the damaged floors.

[4] The CC&R’s require the Association to purchase a “blanket policy or policies of fire and casualty insurance with a special form all-risk coverage endorsement for the full insurable replacement cost of the Common Area and the units … insuring the Board, the Association, the owner or owners of each unit … and their mortagagee(s) … against loss due to fire and other casualty customarily insured against by homeowners….”

[5] After the completion of this project in 1990, plaintiff no longer had water leaking into her unit from the heating and air conditioning vents.

[6] Plaintiff’s causes of action for intentional infliction of emotional distress and breach of fiduciary duty were dismissed after the trial court sustained a demurrer without leave to amend.

[7] We do not suggest, nor do the parties, that the exculpatory clause relieves the Association of its duty under another provision of the CC&R’s to purchase casualty insurance on behalf of the condominium owners. Even if relieved of its contractual liability to pay for property damage, the Association must still provide insurance for the condominium owners. “A court must view the language in light of the instrument as a whole and not use a `disjointed, single-paragraph, strict construction approach.’ [Citation.] If possible, the court should give effect to every provision. [Citations.] An interpretation which renders part of the instrument to be surplusage should be avoided. [Citations.]” (Appalachian Ins. Co. v. McDonnell Douglas Corp. (1989) 214 Cal. App.3d 1, 12 [262 Cal. Rptr. 716].)

[8] In Frances T. v. Village Green Owners Assn., supra, 42 Cal.3d at page 500, footnote 9, the court took “judicial notice of the fact that a rapidly growing share of California’s population reside in condominiums, cooperatives and other types of common-interest housing projects. Homeowner associations manage the housing for an estimated 15 percent of the American population and, for example, as much as 70 percent of the new housing built in Los Angeles and San Diego Counties. [Citation.] Nationally, `[t]hey are growing at a rate of 5,000 a year and represent more than 50 percent of new construction sales in the urban areas. Projects average about 100 units each, so the associations affect some 10 million owners,’ [citation]. [H]ousing experts estimate that there already are 15,000 common-interest housing associations in California. While in some projects the maintenance of common areas is truly cooperative, in most of the larger projects control of the common area is delegated or controlled by ruling bodies that do not exercise the members’ collective will on a one-person, one-vote basis. [Citation.]”

[9] In Cohen, article VII, section 1 of the CC&R’s set forth standards by which the association’s architectural committee was to approve or deny an individual homeowner’s construction or improvement plans. At the same time, however, the CC&R’s purported to release the association from its duty to comply with the provisions of article VII, section 1. Moreover, the CC&R’s purported to absolve the association, its board, its committees, and its members from liability to any member, homeowner, or the association for “`any damage, loss or prejudice suffered or claimed on account of any decision, approval or disapproval of plans or specifications (whether or not defective), course of action, act, omission, error, negligence or the like made in good faith within which such Board, committee, or persons reasonably believed to be the scope of their duties.'” (Cohen v. Kite Hill Community Assn., supra, 142 Cal. App.3d at p. 650.)

The solid slump stone fence at issue in Cohen was approved by the architectural committee despite the neighboring owners’ (plaintiffs) objection that the fence would obstruct their view and violate the CC&R’s. The CC&R’s called for a two-foot slump stone base topped by a three-foot wrought iron fence to preserve the surrounding view. After failing to persuade their neighbor and the association to modify or prevent the construction of the nonconforming fence, the plaintiffs filed suit.

The trial court in Cohen sustained the association’s demurrer, but the appellate court reversed the judgment of dismissal.

[10] We note section 1370, enacted in 1985 (two years after Cohen was decided), provides: “Any … declaration … for a common interest development shall be liberally construed to facilitate the operation of the common interest development, and its provisions shall be presumed to be independent and severable….” (Italics added.)

In criticizing Cohen, Sproul and Rosenberry stated: “The authors believe that California courts should recognize that California developments need 30,000-40,000 residents each year to serve on boards (most of whom serve without compensation), and should therefore not adhere to such a strict interpretation of exculpatory clauses as that taken in Cohen. Although exculpatory clauses were not at issue in Jaffe v Huxley Architecture (1988) 200 [Cal. App.]3d 1188, 1193, …, the court acknowledged that board members are seldom professional managers and that `the specter of personal liability would serve to greatly discourage active and meaningful participation by those most capable of shaping and directing homeowner activities.’ [¶] Courts in other jurisdictions have upheld exculpatory clauses. See Nido v Ocean Owners’ Council (Va 1989) 378 SE2d 837; Kelley v Astor Investors, Inc. (Ill 1985) 478 NE2d 1346; Kleinman v High Point of Hartsdale I [Condominium] (Sup Ct 1979) 438 NYS2d 47.” (Sproul & Rosenberry, Advising Cal. Condominium and Homeowners Associations,supra, § 6.34, p. 280.)

We note that of the three decisions cited by Sproul and Rosenberry, only one is similar to our case.Nido v. Ocean Owners’ Council (1989) 237 Va. 664 [378 S.E.2d 837], involved water leakage from the common areas which caused damage to the plaintiff’s condominium. The plaintiff filed suit against the condominium owners’ council to recover damages under two of the same theories raised here, breach of contract and negligence. As in this case, the owners’ council was found to be not negligent. As for the breach of contract cause of action, the owners’ council was found to be immune under an exculpatory clause. Section 6.5 of the association’s by-laws provided: “The Council shall not be liable for any failure of water supply or other services … or for injury or damage to person or property caused by the natural elements … or resulting from electricity, water, snow or ice which may leak or flow from any portion of the Common Elements.” (Id. at p. 838.)

[11] Section 1354 provides: “The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of separate interests in the development. Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both. In any action to enforce the declaration, the prevailing party shall be awarded reasonable attorney’s fees and costs.”

[12] Section 1370 provides that CC&R’s “shall be liberally construed to facilitate the operations of the common interest development, and its provisions shall be presumed to be independent and severable….”

[13] The trial court found the damage was caused by a leak in the central plumbing, which had deteriorated to the point that the Association had breached its contractual duty to maintain and repair the common area. While the Association challenges on appeal the sufficiency of the evidence to support these findings, we do not reach that issue since the findings are not necessary to our decision of whether the Association may contractually shift the risk of loss to the condominium owner.

 

Keywords: Maintenance, Duty to Repair