Court of Appeal Decision

August 2, 2013

By: David Bernardoni

On June 19, 2013, Len Siegel, Tom Ware, and David Bernardoni secured a Court of Appeal decision upholding the trial court’s sustaining of a homeowner association’s demurrer to homeowners’ complaint seeking to hold the Association liable for in excess of $200,000 in damages arising out of engineering errors in the homeowners’ architectural application. The victory on appeal is significant inasmuch as many of the issues raised in the complaint were matters of first impression which if decided in plaintiffs’ favor could have increased exponentially California non-profit homeowners association’s exposure in connection with processing homeowner architectural applications.

This matter presented the issue of whether a non-profit homeowners association owed a duty to indemnify members for damages arising from the members’ own professional engineers’ erroneous grading plans submitted to the association’s lay art jury. Currently, there is no legal authority that would impose such a draconian obligation. Nonetheless, plaintiffs sought to create an unprecedented duty that would make their neighbors, who comprise such associations, voluntarily serve on their boards and committees, and fund their operation, the guarantors of the architectural applicant’s own professional engineering reports. Plaintiffs admitted that their lot was constructed seven feet above the elevation depicted on the plans approved by the Association’s lay architectural art jury as a result of incorrect elevations depicted in the engineering plans. When their neighbors discovered this error, the neighbors successfully filed a lawsuit compelling plaintiffs to remove the home, which infringed upon their views, and recovered over $200,000 in attorney’s fees. Plaintiffs sought to recover the cost to remove the structure and the $200,000 paid to the neighbors from the Association based on plaintiffs’ claim that the lay art jury negligently failed to discover the engineering errors. Unbeknownst to plaintiffs, the art jury reviewed a prior architectural submission by the neighbor which reflected the correct elevation of the neighboring lot. As a result, the Association approved the plans under the belief that there was a 25 foot height differential between the two properties as opposed to the 18 foot differential depicted in plaintiffs’ plans. Plaintiffs claimed that the Association acted unreasonably in doing so, and in failing to disclose to them that the approval was based on a 25 foot differential not the 18 foot height differential proposed in plaintiff’s plans. We argued that there were no such duties. Plaintiffs, however, tried to convince the Court to extend the duties imposed on Associations to protect the rights of the “neighboring” properties when reviewing architectural applications (Cohen v. Kite Hill Cohen v. Kite Hill Community Association (1983) 142 Cal.App.3d 642) and the obligation to adopt and follow “reasonable” architectural review procedures (Civil Code § 1378) to impose an obligation on the Association to verify the accuracy of the applicant’s architectural submissions. The Court of Appeal refused to do so.

Rather, the Court held that neither the CC&Rs, Section 1378, nor common law imposed an expressed duty on the Association to verify the accuracy of plaintiffs’ erroneous architectural submissions. The Court clarified that Section 1378 imposed an obligation to adopt “reasonable” procedures and the Association is required to comply with these procedures. However, Section 1378 does not include a duty of “reasonableness” requiring the Association to engage in conduct not specifically mandated by the CC&Rs. Furthermore, the Court clarified that the fiduciary duty imposed on associations in Cohen to enforce the governing documents in order to protect the neighboring property interests did not extend to the applying owner, particularly where as here the plaintiffs can point to no provision which was expressly violated by the Association. With respect to this latter point, the Court held that the Association could not be characterized as a joint tortfeasor with plaintiffs vis-à-vis plaintiffs’ neighbors because the Association owed no duty to the neighbor to find an engineering error, notwithstanding Cohen, because the CC&Rs did not contain an express duty on the Association to protect the neighboring owners’ view rights.

Although the case was not published, the decision is impactful beyond the parties to the action as the Court refused to create new precedent that would have dramatically increased homeowners association’s potential liability in reviewing architectural plans.

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