HOA Board of Directors have a duty to act with reasonable diligence in the performance of director duties.

By Keith Turner and Justin Escano

 

Palm Spings Villas II v. Parth is a another example of what can happen when an HOA board member “goes rogue” and tests the limits of the so-called “business judgment rule,” which HOA board members sometimes naively believe  immunizes their conduct from personal liability.  The court held that an HOA director can be held personally liable for failing to act with reasonable diligence in the performance of director duties.

This case is important reminder that HOA board members’ authority is also limited by the governing documents, the CC&Rs and by-laws.

In this case, the HOA itself sued Erna Parth, the HOA president and a member of the board of directors, for a number of questionable actions she took on behalf of the HOA:

Parth hired a roofing company to perform roofing repairs, without notice or approval by the Board, after the Board had already approved and hired a different roofing company for the same repairs.  She did not confirm whether the company held a roofing license.

Parth signed three promissory notes totaling $1.775 million, secured by HOA assets and property, for a project to repave walkways and other repairs. She did not give notice or obtain approval by the board for obtaining the loans; and she did not review the CC&Rs or Bylaws to determine whether she had authority to execute the promissory notes; but she believed she had the authority to do so. Under the governing documents, a vote of the majority of the members was required to use HOA assets as security for the loans; however, she did not know such a vote was required

Parth hired landscaping  company to a 5-year contract; however, under the Bylaws, a majority vote of the members was required to enter into a services contract for longer than a year. She also hired a new management company, even though the existing company had not yet been terminated by the Board, and the Board agreed not to terminate the company until they received bids from other management companies.

Finally, Parth secretly renewed a 1-year contract with their existing security company, even though the Board was actively obtaining bids from other security companies. She did not disclose the 1-year renewal with the new company. When the HOA Board hired a different security company, the existing company sued for breach of contract, which led to the HOA’s cross-complaint against Parth.

At deposition, Perth repeatedly admitted that she had no understanding of what her actual scope of authority was as the HOA President and a board member, and that she never reviewed the governing documents to find out.

Parth’s main defense from personal liability was the  business judgment rule. Although the business judgment rule applies generally to all corporations, the California Corporations Code has special sections for volunteer directors of nonprofit organizations. At issue in Palm Springs Villas II, was the section governing volunteer directors and officers of mutual benefit corporations, Corp. Code § 7231.5.  Under the business judgment rule, an HOA director will not be held personally liable in  the performance of their duties. Even if a director breaks HOA rules, or otherwise makes unsound business decisions, that director will not be personally liable as long as they acted in good faith, in the best interests of the HOA, and based on reasonable inquiry. The business judgment rule is intended to allow board members to make important decisions, including those that may pose some risk to the HOA; without it, directors would be paralyzed by the fear of being held personally liable for acting on behalf of the HOA.

However, the business judgment rule has its limits. It will not protect a director who fails to exercise reasonable diligence, fails to conduct a reasonable investigation, or otherwise acts in bad faith in the performance of director duties.

In Palm Springs Villas II, the court of appeal held that the business judgment rule did not automatically shield Perth from liability, because there were material issues of fact as to whether Perth exercised reasonable diligence and conducted reasonable investigations in the performance of her duties. Parth repeatedly stated at deposition that, before she engaged in these activities, she did not know whether she had the authority to do so. Further, she did not make any efforts to review the governing documents to determine whether her actions needed approval by the Board or by the shareholders. Finally, Parth failed to conduct reasonable investigations and basic inquiries, such as whether the roofing company she hired had a roofing license. According to the court, these failures to investigate amounted to “willful ignorance,” and created an issue of material fact as to whether Parth acted with reasonable diligence. The court even suggested that Parth’s failures could amount to bad faith conduct. As explained by the court, “Permitting directors to remain ignorant and to rely on their uninformed beliefs to obtain summary judgment would gut the reasonable diligence element of the rule and, quite possibly, incentivize directors to remain ignorant.”

Palm Springs Villas II is a good reminder to HOA directors that they have a duty to act exercise diligence when attending to the property’s needs. HOA directors cannot simply hide behind the business judgment rule. The case is good example for disgruntled unit owners to challenge the ineptitude and incompetence of HOA directors, and to remind them to do their duty.

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Fence, Tree, and Hedge Height Law

By Keith Turner and Justin Escano

Fence, Tree, and Hedge Height Law

  1. Is property subject to CCRs or other recorded property specific restrictions?
  2. Local zoning – Los Angeles Municipal Code provisions
  3. Spite fence law

  1. Is property subject to CCRs or other recorded property specific restrictions?

 Obtain title report.  Many properties, particularly in tracts north of Sunset, are subject to recorded CC&Rs (conditions, covenants, and restrictions), DORs (declarations of restriction) or similar recorded restrictions which limit heights of fences, trees, etc.  For instance, some of the Marquez Knolls CC&Rs limits boundary fences and walls to a height of three feet.   (Tract 2622, ¶14)

  

  1. Local zoning, Los Angeles Municipal Code provisions

The Los Angeles Municipal Code defines the terms “fence” and “wall” to include: latticework, ornamental fences, screen walls, hedges or thick growths of shrubs or trees.

First, determine the property’s zoning: ZIMAS

  • Zoning
  • Hillside Area (Zoning Code)
  • Other

Second, the basic rules from Los Angeles Municipal Code §12 22.C.20.(f) (check the Ordinance for updates/changes) :

  • FRONT YARD FENCES: in most residential areas, fences, hedges, trees are limited to 3.5′ in height in the front yard.
  • SIDE YARDS, REAR YARDS AND OTHER SPACES: 6′ or 8′ depending on property’s zoning. For example:
    • 8 ft. maximum height – R zoned property, if lot width is 40 ft. or greater and not in hillside area.
    • 6 ft. maximum height – R zone if lot width is less 40 ft
    • 6 ft. maximum height – R zone, hillside area.

See LAMC §12.22.C.20.(f)(3) for full text of law and height limits in other property zones (which is below).

Third, how measured:

  • The Ordinance states: “Fence and wall height shall be measured from the natural ground level adjacent thereto.”
  • BUT see LADBS, INFORMATION BULLETIN / PUBLIC – ZONING CODE

screenshot

 

  1. Spite Fence Law

What is a spite fence?

California spite fence law starts with Civil Code section 841.4. It states, “any fence or other structure in the nature of a fence unnecessarily exceeding 10 feet in height maliciously erected or maintained for the purpose of annoying the owner or occupant of adjoining property is a private nuisance.” The statute is not limited to traditional fences. In Wilson v. Handley (2002) 97 Cal.App.3d 1301, the Court of Appeals held that trees and hedges planted in a row to form a barrier may be deemed a spite fence. The court agreed in Vanderpol v. Star (2011) 194 Cal.App.4th 385, finding that at row of pine trees planted along a neighbor’s boundary line could be considered a spite fence for the purposes of the statute.

The court in Wilson v. Handley expanded the definition of a “structure in the nature of a fence.” Defendants argued that a row of trees was a not a “structure”, and thus could not come under Section 841.4. The court, however, defined a fence as  a “structure … erected … to separate two contiguous estates,” and “a barrier intended … to mark a boundary.” Ultimately, the court concluded that, in light of the purpose of the spite fence statute, the term “fence” should be liberally construed. By this reasoning, other non-traditional fence-like structures may come under the California spite fence statute.

The Los Angeles Municipal Code has its own spite fence statute. LAMC Section 41.30 states, “”No person shall maliciously construct, erect, build, plant, cultivate or maintain any fence or wall or any hedge or similar growth unnecessarily exceeding six (6) feet in height, for the purpose of annoying the owners or occupants of adjoining property.”

How do you prove it?

Both the California and Los Angeles spite fence statutes require a showing that the fence was “maliciously” constructed or maintained. Courts generally use the “dominant purpose” test to determine malice. Under that test, if the dominant purpose in constructing or maintaining the fence was to annoy a neighbor, then malice may be found. However, if there is another dominant purpose for the fence, such as to maintain the aesthetic qualities of one’s property or to protect one’s own privacy, then there is no malice. Since every dispute is different, the question of malice must be answered on a case-by-case basis.

The California spite fence statute also requires a showing of damages. In Vanderpol v. Starr, the jury originally awarded damages for the reduction of property value caused by a neighbor’s spite fence. On appeal, however, the court says this loss of property value was the wrong measure of damages.  Instead, the California spite fence statue requires injury to the “comfort or enjoyment” of one’s property. The court likened the spite fence statute to other nuisance statutes, which similarly require that the complaining party was “injuriously affected” or have his or her “personal enjoyment [] lessened by a nuisance.”

How do you enforce it?

The California spite fence statute includes a right of enforcement for private citizens. It states that any person may enforce the statute by filing a civil action, pursuant to Civil Code section 3501.

Unlike the California statute, the LAMC spite fence statute does not explicitly include a right of enforcement by private citizens. However, under California Government Code section 36900, a private citizen may still be able to sue for violations of the LAMC.

Section 36900 states that violation of a city ordinance may, “be prosecuted by city authorities in the name of the people of the State of California, or redressed by civil action” (Emphasis added). In Riley v. Hilton Hotels Corp. (2002) 100 Cal.App.4th 599, 607, the court held that Section 36900 allowed a private individual to sue for an alleged violation of the Beverly Hills Municipal Code. Thus, a homeowner may still be able to sue for violation of the spite fence statute in the Los Angeles Municipal Code, or other local codes and ordinances.

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Homeowners of Encino – Zoning Primer

The Homeowners of Encino’s website features an detailed introduction to zoning and planning in Los Angeles: A BRIEF PRIMER ON LAND-USE TERMINOLOGY . Thanks to Gerald A. Silver for letting us link to his excellent article.

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Recent Developments in Neighbor vs. Neighbor Encroachment Related Disputes

By: Keith J. Turner and Angelica J. Varela

Sometimes the development and use of property goes beyond the property line, such as driveways and landscaping improvements, which are called “encroachments.”   (An “encroachment” is the extension of a building or other structure beyond the boundaries of the land on which it was rightfully constructed onto adjoining land, or into its airspace, without the permission or consent of the adjoining landowner.)   Encroachments are often discovered when a land survey is done by a property owner when submitting a new property improvement, such as when a property owner wants to add a swimming pool or home addition.  The law provides that such use and development can sometimes ripen into property rights; and, sometimes it does not.  Some recent cases highlight that the analysis can be complex and it is important for property owners to timely assert their rights, or they risk essentially losing a piece of the land.

  • Equitable easement doctrine: you may be stuck with an encroachment. California courts have discretionary authority to deny a landowner’s request to force removal of a neighbor’s encroachment and instead force the landowner to accept damages as compensation for the judicial creation of an easement over the trespassed-upon property if three elements are proven: (1) the trespass was “ ‘innocent’ ” rather than “ ‘willful or negligent,’ ” (2) the public or the property owner will not be “ ‘ “irreparabl[y] injur[ed]” ’ ” by the easement, and (3) the hardship to the trespasser from having to cease the trespass is “ ‘ “greatly disproportionate to the hardship caused [the owner] by the continuance of the encroachment.”

In Shoen v. Zacarias (2015) 237 Cal.App.4th 16, the dispute was over 481 square foot flat patch of land between two hillside properties.   When the defendant purchased her property in 2003, she thought the patch was on her property and populated it with outdoor furniture—a cabana, a chaise chair, tables, and stools; none of it is set in concrete.  But in 2005, the plaintiff’s predecessor land surveyed the boundaries and discovered that the patch belonged to him, but told the defendant she could continue to use it for as long as he owned the property.   However, in 2006, the plaintiff purchased the property and in 2011, she demanded demand that the defendant remove the furniture, even though the plaintiff could not reach the flat patch of land without a building a staircase that would cost $100,000 to build.

The trial court granted the defendant an equitable easement but the court of appeal reversed, holding that a trial court has the power to issue an equitable easement authorizing a trespasser to continue her trespass in exchange for paying damages, but only if, among other things, the hardship on the trespasser in ceasing the trespass is “greatly disproportionate” to the hardship on the land’s owner in losing use of the trespassed upon portion of her land.  Because removing the furniture would only cost $275, the court held that the defendant was not entitled to an equitable easement because hardship was not “greatly disproportionate” on the defendant.

Shoen is important because the court rejected the lesser criteria of “balancing of conveniences” or “relative hardships” as the basis to determine equitable easement rights.  Rather, the court held that the encroacher to prove that ordering removing of the encroachment would be “greatly disproportionate to the hardship caused [the owner] by the continuance of the encroachment.”

  • Parole License: verbal encroachment agreements may be enforceable

An “easement” is generally defined as the right to use someone else’s property for a specific purposes, such as access, and an easement is considered to be interest in real estate, giving the holder a right to bring a suit for trespass or ejectment. Because it is an interest in the property itself, it is subject to the statute of frauds, so it must be granted in writing.   In contrast a “license” allows its holder to perform some act on property of another, or use the property in some way. It gives the holder a personal privilege, but not an interest in the land itself.  Licenses are usually revocable.

In Richardson v. Franc (2015) 233 Cal.App.4th 744,  the dispute was whether a neighbor exceeded the scope of an express easement for access and utility purposes over a shared driveway, buy installing and maintaining landscaping, irrigation, and lighting.  The trial court ruled—irrespective of the terms of the easement—it would be inequitable to deny respondents an irrevocable license given their substantial investment of time and money on the landscaping and other improvements and the burdened property owner’s years of acquiescence.

Richardson is a major case because licenses are usually revocable, but the court held it was irrevocable and it held that it ran not only in favor of the present owners, but also to their successor-in-interest.   Hence, the court granted essentially a permanent right that runs with the land, the way an easement does.

This case also makes the analysis more difficult and harder to predict outcomes in these neighbor vs. neighbor encroachment related disputes.  The court in  Richardson discussed in great detail all of the landscaping and other improvements that were made over the years and how the burdened property benefitted from letting the easement holder do all the work and pay for all the decades of landscaping and water bills.  So having good evidence such as photos and receipts to build a case fairness and balancing the equities can be the key fact.

 

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Prevailing Defendant is Entitled to Attorney’s Fees – California Supreme Court Opinion in Tract 19051 v. Kemp (Yeldell)

In a unanimous decision by all seven Justices, the California Supreme Court held that in any action to enforce governing documents of a common interest development, the “prevailing party” is entitled to attorneys fees under Civil Code section 5975, even where plaintiffs fail to establish that a common interest development exists.  Continue reading

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CEQA and View Rights

By Keith Turner and Justin Escano

Another possible weapon for arsenal for view rights claims is the California Environmental Quality Act (CEQA).  In a nutshell,  the CEQA law provides that if a public and private development project may create a significant environmental impact, then an Environmental Impact Report (EIR) must be prepared, analyzing the potential impacts and possible mitigation alternatives.

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Palisades News – Pacific View Rights Center

The Pacific View Rights Center ad in Palisades News, the exiting new town paper.

pvrc

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Pacific Palisades Civic League – Tract 9300 website

The Pacific Palisades Civic League, the claimed guardian of Tract 9300, finally launched its own website:  www.PPCL9300.org

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Home Improvement and Resolving Contract Disputes: An Interview with Keith Turner of Turner Law Firm

 

See Keith Turner’s interview on Southern California Homes, a top site for California homes for sale, as well as New Mexico real estate, Northern California real estate and Los Angeles, CA homes for saleHome Improvement and Resolving Contract Disputes.

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Beglari Plaintiffs Win $425,000

By Keith Turner and Justin Escano

belgari

With all of its twists and turns, the Beglari case is an excellent example of just how difficult it can be to enforce Los Angeles building codes, even when multiple attorneys, retried judges, and high-end real estate are involved.

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