CAI Law Review: Stay of Board Member Recall Exceeds Court's Jurisdiction

Villa Europa Homeowners Association v. The Superior Court of San Diego County, No. D056640, Cal. App. Ct., April 22, 2010

Association Operations/State and Local Legislation and Regulations: In an unpublished opinion, a California appeals court found that the trial court exceeded its jurisdiction when it stayed the effect of a vote to recall a homeowners association's board of directors.

In 2002, Renee Sack sued Villa Europa Homeowners Association in connection with water and mold damage to her condominium unit caused by a leak in the ceiling of her master bedroom and a backup in the drain line of her kitchen sink.

In 2009, she served the association with a request for production of documents, asking that the association produce all minutes from 2003 to the present and its financial records, in addition to documents that related to her mold case. The association objected to the requests and agreed to produce all relevant, non-privileged documents, with the exception of its financial records. Sack filed a motion to compel further responses.

In October 2009, Sack went to the offices of the association's management company and requested access to the association's books and records. She was told she would have to schedule a time to return when the office manager was present. The following day, she was informed by an employee of the management company that she would have to provide a list of documents she was seeking and declare whether she was making the request as a board member or homeowner. She refused, asserting that she had an absolute right to inspect the documents as a member of the board. The association's representative then informed her that she was not entitled to review documents related to her personal dispute in the mold case or documents that impacted the rights of third parties. She was presented with a form to sign acknowledging her fiduciary duty to maintain the confidentiality of privileged information, and agreeing to maintain the confidentiality of the documents and not produce them to her counsel in the mold case, use them in her litigation, or disclose them to third parties. She refused to sign.

In November 2009, the association cautioned Sack from using her position as a director to obtain documents to assist in her personal litigation, and reminded her she had a duty to act in the association's best interest. The association agreed to make all records not pertaining to her dispute available for inspection, so long as she acknowledged her fiduciary duty not to disclose such records without approval of the association's board.

Sack filed a petition under California's Corporations Code, to obtain the same documents she sought through the discovery process in the mold case. The association agreed to allow her to inspect the association's records without formal acknowledgment of her fiduciary duty to maintain confidentiality but warned her that if she chose to use her inspection rights for personal gain, the association would consider her actions a breach of her fiduciary duty. She would not agree not to use evidence she obtained as a board member in her mold case and continued with her petition seeking access to all association documents except those governed by attorney-client privilege. The court granted her petition.

Before the court granted the petition, however, the association's board voted to remove Sack as a board member based on her failure to attend three consecutive board meetings, and she sought an ex parte restraining order to prevent the association from removing her as a board member. Her application did not seek a stay of the effect of the vote to remove her. At the hearing, the court denied her request for a temporary restraining order, but ruled that the effect of any vote removing her from the board was stayed until after the court ruled on her petition or the association produced any documents ordered by the court.

Her petition was heard on Dec. 31, 2009, and the court granted it in part, ordering the association to produce the documents except those protected by attorney-client or work product privileges. The court declined to rule on whether it was proper for her to share the documents with any other person. It also extended the stay on the effect of any vote to remove directors to the date of the recall vote scheduled for Jan. 9, 2010.

On that date, the association's membership voted to remove all the directors and elect a new board. However, because of the court's stay, the current board remained in power.
The association and its management company, the custodian of its corporate records, appealed the court's decision, arguing that the court exceeded its jurisdiction by issuing a stay of the recall vote; allowing Sack access to the association's records was an abuse of the discovery process in the mold case; and the order requiring the association to produce its records to Sack would result in a breach of her fiduciary duty to the association.

To the appeals court, it was undisputed that the entire board of directors had been recalled and could no longer remain on the board. Sack did not dispute that the recall was proper and valid.
Because of the governmental nature of homeowners associations, the appeals court applied municipal law, and concluded that the trial court acted in excess of its jurisdiction by staying the effect of the recall vote, because it attempted to enjoin a validly enacted vote. Further, the court's stay of the recall vote permitted a board that had been voted out to remain in power and prohibited the properly elected board from assuming power. The court ruled that because Sack was no longer a board member, her right to access the association's records had ceased.
The court granted the association's petition for writ of mandate and directed the trial court to set aside its previous orders.

Fairfax County Deer Management Survey

In an effort to assess the public’s opinion on deer management in Fairfax County, a survey is now available at http://www.fairfaxcounty.gov/survey/deermanagement.htm.

Residents are encouraged to complete the survey concerning their thoughts and observations on the prevalence of deer, as well as ongoing and future attempts to address issues surrounding them. The survey will be posted until August 1, 2010.

To learn more about deer management in Fairfax County, visit http://www.fairfaxcounty.gov/living/animals/wildlife/management/deer-management.htm or contact Fairfax County Wildlife Biologist Vicky Monroe at 703-324-0240.

CAI Law Review: Owner Must Pay Assessments If Board Acts within Scope of Business Judgment Rule

The Board of Managers of Lido Beach Towers Condominium v. Gartenlaub, No. 015217/09, N.Y. Supr. Ct., April 8, 2010

Assessments/Covenants Enforcement: In an unpublished opinion, a New York court granted summary judgment to a condominium board of managers in an action to collect past due assessments, finding that the board acted within the scope of the business judgment rule.
Bernard Gartenlaub owns a unit in Lido Beach Towers Condominium, located in Nassau County, N.Y. The Board of Managers of Lido Beach Towers Condominium sued Gartenlaub to collect past due assessments, moving for summary judgment.

The board provided proof of—and Gartenlaub did not dispute—the correctness of the amounts owed. His defenses were based on allegations that repair work on the condominium building was grossly mishandled, the board failed to obtain proper approval of the construction budget for the repairs, and his unit had numerous uncorrected problems arising from the repair work. He also alleged in a counterclaim that the board frustrated his attempt to sell his unit.
The court noted that someone who purchases a condominium unit enters into a binding relationship with every other unit owner, both by contract and by statute. One element of that relationship is the obligation to pay common assessments, irrespective of any dispute an owner might have with another unit owner, a board of managers, or third parties acting on behalf of the association. Under a condominium regime, all unit owners comply with the bylaws, rules, regulations, resolutions and decisions adopted pursuant thereto. Lido Beach Condominium's bylaws provide that all owners are obligated to pay common charges assessed by the board, as well as special assessments, and interest, attorneys' fees and legal expenses incurred for collection in events of default. The obligation to pay common and special assessments cannot be avoided.

When a unit owner challenges an action by a condominium's board of managers, the court will apply the business judgment rule, which limits the court's inquiry to whether the board acted within the scope of its authority and whether the action was taken in good faith to further a legitimate interest of the condominium. Unless the unit owner is able to demonstrate a breach of the board's duty to act in good faith within the scope of its authority, judicial review of the board's actions is not available.

In accordance with the law, a unit owner cannot withhold payment of common assessments based on defective conditions in his unit or the common areas, or because of any disagreement with actions lawfully taken by the board. In view of this, the court determined that the board had made a prima facie case for summary judgment, based on the evidence it submitted to the court. The board was able to demonstrate that Gartenlaub's affirmative defenses lacked merit.
Gartenlaub was unable to show that issues of fact existed that would merit a trial. He offered no allegations or proof that would permit the court's inquiry beyond that permitted by the business judgment rule. He alleged that the board made significant increases to the budget to fix problems with the building, and owners were billed for large assessments to cover the cost. However, he admitted that the owners voted to authorize a proposed budget. He failed to present evidence indicating that the assessments themselves were not authorized under the bylaws and admitted there were two votes by the owners in favor of large expenditures for the construction work. The court concluded these votes by the members constituted implicit acknowledgment of the board's general authority to act.

The court considered the only issue raised by Gartenlaub that might overcome the business judgment rule, his assertion that a construction budget was to be put before the owners for a vote, but never was. However, he presented no facts to show that the board was obligated under the bylaws to do so. Because he presented no proof that the assessments themselves were unauthorized, and a legitimate purpose was evident—to complete the construction work—the legal sufficiency of the court's response to this motion rested on his allegations of bad faith.
Gartenlaub claimed that the board overspent and mismanaged the construction project, it failed to keep owners apprised of the construction progress, and failed to address the problems in his own unit. The court observed that, even if Gartenlaub's allegations were true, they did not rise to factual allegations of fraud or self-dealing sufficient to permit the court to bypass the business judgment rule. Given Gartenlaub's inability to demonstrate the board's lack of authority to impose the assessments at issue, his disagreements with the board's actions were not enough to avoid payment of the assessments he owed.

The court refused Gartenlaub's request for discovery, because he made no showing that such discovery might lead to facts that would serve as a basis to defeat the board's motion. The court dismissed his counterclaim, because he expressed no legal theory in its support.
The court granted the board's motion for summary judgment, with attorney's fees in accordance with the condominium's bylaws.

The Arlandria Farmers and Artisans Market Grand Opening

The Arlandria Farmers and Artisans Market Grand Opening
Arlandria is getting an outdoor market! Beginning this Sunday, June 20, 2010 local farmers, craftsmen, and artisans will converge on the vacant lot adjacent to the Duron Paint Building to sale their goods. The market will run each Sunday from June through October, rain or shine. For additional information, please contact Nick Partee at: info@arlandria.org or visit: http://www.arlandria.org.