POWERPOINT SLIDES NEW CASE LAW THURSDAY GENERAL SESSION SPEAKERS 3:40 4:40 PM. David F. Feingold, Esq. Michael J. Hughes., Esq.

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1 POWERPOINT SLIDES NEW CASE LAW THURSDAY GENERAL SESSION 3:40 4:40 PM SPEAKERS David F. Feingold, Esq. Michael J. Hughes., Esq C A C M, I n c. - L a w S e m i n a r - A l l r i g h t s r e s e r v e d.

2 New Cases and Case Law SPEAKERS David F. Feingold, Esq. Michael J. Hughes, Esq. Case Law What s the Point? C A C M, I n c. - A l l r i g h t s r e s e r v e d. 1

3 Published Appellate Cases Unpublished Appellate Cases Trial Court Cases Published Appellate Cases Suing the Architect Beacon Residential Community Association v. Skidmore C A C M, I n c. - A l l r i g h t s r e s e r v e d. 2

4 WHAT HAPPENED? High Rise condominium defect action Architect sued for design defects - solar heat gain in high rise caused by selected windows and design Architect claims no duty to association (buyers) YOU BE THE JUDGE! Can an architect be sued by future owners of a residential project for negligence? Yes No WHAT DID THE COURT DECIDE? Architects can be sued by future owners Three part test: 1. Close connection between negligent conduct and injury? 2. Clear and definable class intended to be affected by the work? 3. Did the owners have ordering options that could have protected them? C A C M, I n c. - A l l r i g h t s r e s e r v e d. 3

5 TRENDING ISSUES Architects and engineers will be scrutinized HOA renovation projects pay attention to indemnities, limitation of liability clauses, and insurance issues STANDING TO SUE Market Lofts Community Association v. 9 th Street Market Lofts LLC WHAT HAPPENED? 267 unit condominium project Agreement between developer and adjacent parking structure owner for perpetual no-cost parking rights for condominium purchasers Developer-controlled board eliminates no-cost parking deal in a new agreement Owner controlled board later sues developer for breach of fiduciary duty and to rescind new agreement C A C M, I n c. - A l l r i g h t s r e s e r v e d. 4

6 Developers claimed the association lacked standing (the right) to sue, arguing that association members were damaged, not the association itself YOU BE THE JUDGE! Did the association have standing to sue the developer and seek as damages the money that the owners had to pay for the parking? Yes No WHAT DID THE COURT DECIDE? Yes -- the association can sue An association has standing to sue the developer for negligence and self-dealing as a representative of the owners when: An ascertainable class of owners exists A well-defined community of interest exists C A C M, I n c. - A l l r i g h t s r e s e r v e d. 5

7 TRENDING ISSUES Reaffirms associations right to sue in a representative capacity for harm done to the owners Developers can be held liable when they are controlling members of a board Watch for self dealing or conflicts of interest! ASSESSMENT COLLECTION - REJECTION OF PARTIAL PAYMENTS Huntington Continental Town House Assn., Inc. v. Miner WHAT HAPPENED? Association sued homeowners to foreclose assessment lien Homeowners made partial payments -- principal only no late fees or collection costs Association rejected partial payments C A C M, I n c. - A l l r i g h t s r e s e r v e d. 6

8 YOU BE THE JUDGE! Was the association entitled to reject partial payment so that foreclosure could proceed? Yes? No? WHAT DID THE COURT DECIDE? Associations must accept partial payments that reduce delinquent assessments owed even after foreclosure proceedings commence Associations must accept partial payments even if such payments do not include late fees, costs of collection, attorneys fees, etc. Partial payments that cover the principal preclude associations from proceeding with foreclosure TRENDING ISSUES What to do? Civil Code 5720 foreclosure thresholds: $ months delinquent C A C M, I n c. - A l l r i g h t s r e s e r v e d. 7

9 FREE SPEECH PROTECTION FOR BOARD MEMBER ACTS OR STATEMENTS Talega Maintenance Corporation v. Standard Pacific Construction WHAT HAPPENED? Association sued developer for defective trails Developer directors named as defendants Association alleged fraud, negligence, and breach of fiduciary duty for directors: Statements about responsibility for trail repairs Votes at meetings to use association funds to repair trails Anti SLAPP Motion CCP Protection for Strategic Lawsuits Against Public Participation Defendants move to strike, claiming lawsuit is barred because the claims based on protected activity Prior cases protected HOA directors from certain claims found to be protected free speech C A C M, I n c. - A l l r i g h t s r e s e r v e d. 8

10 YOU BE THE JUDGE! Can the director defendants dismiss the lawsuit because their actions on the board constituted protected activity? - Yes - No WHAT DID THE COURT DECIDE? Directors acts of withholding information and improperly expending HOA funds were not protected free speech The statements were made in a public forum, but were not a public issue because no ongoing controversy TRENDING ISSUES Directors may be held liable for actions as association directors But free speech rights exist in HOA s for directors and members Don t SLAPP anyone and know when you are being SLAPPED C A C M, I n c. - A l l r i g h t s r e s e r v e d. 9

11 ATTORNEY-CLIENT PRIVILEGE Seahaus La Jolla Owners Association v. Superior Court WHAT HAPPENED? Construction defect action against developer Association s attorney wrote letters and communicated with the members Developer sought access to those member communications, claiming not attorney client privileged YOU BE THE JUDGE! Were communications between the attorney and members who were not directors protected by the attorney client privilege? Yes No C A C M, I n c. - A l l r i g h t s r e s e r v e d. 10

12 WHAT DID THE COURT DECIDE? Attorney s communications with members were protected by the attorney-client privilege Communications were necessary for attorney to pursue construction defect litigation on behalf of the association TRENDING ISSUES Protecting privilege as to third parties is not guaranteed don t assume it will be. Can members demand access to communications with HOA general counsel? ALTERNATIVE TO SB 800 DISPUTE RESOLUTION PROCESS ESTABLISHED BY DEVELOPER McCaffrey Group, Inc. v. Superior Court C A C M, I n c. - A l l r i g h t s r e s e r v e d. 11

13 WHAT HAPPENED? Developer set forth alternative dispute resolution procedures in the sales contracts and warranties opted out of SB 800 Right to Repair Act requirements Owners alleged the dispute resolution process was unconscionable because: Owners had no bargaining or negotiation power Process one sided and did not contain any deadlines for completion YOU BE THE JUDGE! Could the developer enforce the dispute resolution procedure it created that contained no deadlines? - Yes - No C A C M, I n c. - A l l r i g h t s r e s e r v e d. 12

14 WHAT DID THE COURT DECIDE? Developer s alternative dispute resolution procedures were not unconscionable Not so one-sided as to shock the conscience and good faith implied in all contracts Court orders process to be followed TRENDING ISSUES Consistent with findings of the California Supreme Court that developers can insert construction defect dispute resolution requirements in CC&Rs What about CC&R amendments to control member suits? NO COST ASSESSMENT COLLECTIONS Hanson v. JQD, L.L.C. TRIAL COURT PRELIMINARY DECISION C A C M, I n c. - A l l r i g h t s r e s e r v e d. 13

15 WHAT HAPPENED? Association retained firm to collect delinquent assessments under its no cost program Owner attempt to pay principal only was rejected by collection firm and assessment lien recorded Owner sues alleging collection firm had no right to costs if not charging costs to association Defendant filed motion to dismiss YOU BE THE JUDGE! Should the case be dismissed because an owner is liable for assessment collection costs even if those costs are not incurred by the association? Yes No WHAT DID THE COURT DECIDE? Case not dismissed, Trial Court found that owners are liable for collection fees charged by vendors only to the extent that those fees have actually been incurred by the association Decision was preliminary! C A C M, I n c. - A l l r i g h t s r e s e r v e d. 14

16 TRENDING ISSUES Impact on future non-judicial collection actions? No cost collection services are being highly scrutinized by courts and local district attorneys Stay tuned for further developments RENTAL RESTRICTION CHALLENGED Guttman v. Glen Towers Owners Association, Inc. (Unpublished) WHAT HAPPENED? 61 unit condominium building Single Units were maid units with no kitchen on first floor, only owners of Master Units upstairs could own Only family and other household members of the Master Unit (including domestic servants or guests) could occupy a Single Unit C A C M, I n c. - A l l r i g h t s r e s e r v e d. 15

17 Owner since the 1970 s began violating restriction in the 1990 s by renting consistently lied about use HOA sued in 2010 Owner claimed restriction unenforceable YOU BE THE JUDGE! Is a CC&R provision restricting the rental of a condominium unit enforceable? Yes No WHAT DID THE COURT DECIDE? Court found that the occupancy restrictions of the Single Units were reasonable and enforceable No waiver by HOA burden is on party claiming waiver of a right to enforce C A C M, I n c. - A l l r i g h t s r e s e r v e d. 16

18 Trending Issues Vacation Rentals -- Airbnb, HomeAway, VRBO, Flipkey House Swap Homeexchange, lovehomeswap Enforcement of Rental Restrictions difficult to police and enforce Airbnb laws, e.g., San Francisco As of February 2015, allows turning homes into ad-hoc hotels FANNIE MAE AND DELINQUENT ASSESSMENTS Federal National Mortgage Association v. Rothman, et al. (Unpublished) WHAT HAPPENED? Fannie Mae refused to pay assessments on foreclosed properties Associations recorded liens by attorney Rothman (which included his collection costs, interest and late charges) against the Fannie Mae properties C A C M, I n c. - A l l r i g h t s r e s e r v e d. 17

19 Fannie Mae sued Rothman and the associations arguing charges excessive and that Rothman acted with fraud, malice and in bad faith Claimed charges included pre foreclosure assessments, fees and costs YOU BE THE JUDGE! Was Fannie Mae obligated to pay delinquent amounts that accrued before a foreclosure? Yes No WHAT DID THE COURT DECIDE? Fannie Mae was not liable for pre-foreclosure assessments and costs and fees but was responsible to pay post foreclosure assessments and fees and costs C A C M, I n c. - A l l r i g h t s r e s e r v e d. 18

20 TRENDING ISSUES Watch for demands on foreclosing lenders are you asking for pre-foreclosure delinquencies? Judicial Deference in Architectural Decisions Harper v. Canyon Hills Community Association (Unpublished) WHAT HAPPENED? Owner sues neighbor for building home and HOA for approving project HOA files for summary judgment, trial court grants motion finding that rule of judicial deference applies and burden of proof was on the owner to show lack of good faith on HOA s part C A C M, I n c. - A l l r i g h t s r e s e r v e d. 19

21 YOU BE THE JUDGE! Is it the owner s burden to prove that HOA did not act in good faith when enforcing architectural standards? Yes No WHAT DID THE COURT DECIDE? Appellate Court reversed the Trial Court, finding burden of proof was on HOA, not owner TRENDING ISSUES Highlights importance of documenting authority, reasonable inquiry, good faith and best interests of the community, in all association decisions C A C M, I n c. - A l l r i g h t s r e s e r v e d. 20

22 C A C M, I n c. - A l l r i g h t s r e s e r v e d. 21