HOA Law Blog
Calemine v. Jared Court Homeowners Association, Inc.
In an unpublished opinion, the California Court of Appeals, relying on the Supreme Court’s decision in Lamden, upheld a trial court ruling that a condominium association, acting in good faith and in the best interests of the community, can decide not to take action to stop water from intruding or leaking into a unit due to construction defects in common areas.
Jared Court, an 18 unit townhouse style condominium association located in Woodland Hills, California, is made up of four buildings and common area that includes a tennis court, swimming pool, concrete walkways, front patios and mature landscaping. The CC&Rs require that the Association “maintain the portion of the project not occupied by the units [the common area], in good, clean, attractive and sanitary order and repair.”
Each unit in Jared Court has a similar townhouse style three-level design. The lowest level consists of a garage and a windowless “bonus room”; the second level contains an entry foyer, living room, family and dining room, kitchen and powder room; and the upper level has three bedrooms and two bathrooms.
In 1982, shortly after the association was completed, unit owners became aware that water was leaking through the foundation and into the garage and bonus room areas. The association sued the developer/builder for construction defects and received a settlement of $335,000. Using the settlement funds, the association hired a contractor to repair and waterproof the interior of the below-grade surfaces of the garages and bonus rooms.
The repairs performed by that contractor were defective and did not resolve the water intrusion issues. The association sued that contractor in 1996 and settled that second generation defect case for $565,000. During the lawsuit, the association hired a consultant/expert who estimated that it would cost approximately $1,020,896 to repair the defects and stop the water intrusion; and that the repairs would involve extensive trenching and disruption to the common areas. After the settlement, the association received repair estimates for less extensive work from another contractor that ranged from $119,800 to $305,000. The association decided to hire that contractor to “repair” the foundation and use the balance of the settlement received from the prior lawsuit for other unrelated common area repairs.
The contractor completed its work in 1998, but wrote the association to document its discussions with the association’s board members in which it advised the board that the contractor would neither take responsibility nor give any guarantees that the water intrusion issues would be controlled or corrected, citing many contributing factors. Jared Court however did not experience any water intrusion problems between the time the second round of repairs were completed in 1998 until late 2004.
Larry and Camille Calemine bought an end unit in Jared Court in July 2002. The front and left sides of their unit face an upward slope that is supported by a retaining wall. The Calemines used the lower level bonus room as an office. In January 2005, during a period of unusually high rainfall, water leaked through the foundation of their unit into the garage and bonus room. There was standing water in the bonus room and water that flowed over the slightly slanted garage floor. These same areas suffered water intrusion in April 2005 and April 2006. Ultimately, the bonus room became unusable due to moisture, concerns about mold and the threat of further water damage. An industrial hygienist who examined the unit found evidence of certain types of fungi and spores.
The Calemines’ insurance company denied their claim on the basis that the cause of the damage originated from the condominium association’s common area. In 2005, when the Calemines made attempts to have the association and management company address their problem, they learned for the first time of the past water intrusion problems. [Note, the Calamines sued the former owner of their unit who had been the president of the association, who testified that he did not disclose the prior problems because they had been resolved; more on this in a future article.] It should also be noted that this water intrusion problem only affected the Calamines’ row of 4 units and the other owners did not join in their lawsuit.
In February 2005, the board sent a memo to all association members regarding the water intrusion problem and, in June, sent a more thorough explanation to both association members and prospective purchasers. The initial letter summarized previous water intrusion issues and indicated that while efforts would be made to address roof and foundation leaks, the association could not prevent all leaks but would investigate and make certain repairs. The subsequent letter outlined the previous problems in more detail and addressed the extent and cost of the work that would be required to solve the problems, noting that the contractors still would not guarantee that there would be no further water intrusion during times of heavy rainfall. The letter stated that the work would have to be paid for by a substantial special assessment levied against each homeowner. The letter further stated that the board had determined, in the best interests of the association members, that the association would not assume liability for water intrusion into below grade portions of the units or pay to repair or abate damage to such areas or personal property in those areas resulting from such water intrusion.
The president explained that the board reached its decision not to undertake additional repairs after it consulted with and acted upon the advice of its attorney and the contractor who performed the repair work in 1998. The board also considered that the special assessment necessary to fund the repairs would be a hardship to many of the Jared Court homeowners who were retirees on a fixed income. Finally, the board weighed the facts that prior repairs had not resolved the water intrusion, that contractors could not guarantee future success and that the water intrusion was limited to non-habitable areas of (some but not all of) the units. It was also determined that the water that was intruding into the units was not creating any damage to the structure of the building itself.
The Calemines sued the association for nuisance, breach of contract, negligence and misrepresentation or concealment. They alleged that the association maintained and repaired the premises in a manner that permitted water intrusion, which resulted in damage to the walls and floors of the condominium and constituted a nuisance under California law. They further alleged that the association breached its duty to maintain and repair common areas by allowing damage to continue to occur as a result of its past negligent decisions. The association denied the allegations.
The Calemines subsequently amended their complaint, adding new claims that alleged that the association breached its duty to maintain the common areas in good repair as outlined in the CC&Rs. They sought a permanent mandatory injunction directing the association to conduct immediate, effective and permanent repair to the common area adjacent to and surrounding their unit, so as to permanently prevent future water intrusion into their unit and the damage resulting therefrom and enjoining the association from continuing to violate the mandatory provisions that required them to affect the repairs. The association again denied the allegations.
During discovery, testing conducted by experts revealed that initial construction of the condominiums was defective in that a below-grade drain was installed upside down at the wrong depth. The defect allowed water to seep under the retaining wall and concrete slab into the garage and bonus room area when the soil outside the Calemines’ building became saturated. The work necessary to correct the defect would take about six months to complete and was described as a major project that would involve removing landscape and hardscape. Estimates for the cost of the work ranged from $270,000 to $429,000 without any guarantee that further water intrusion would be prevented. Estimates for the additional cost to repair the interior of the Calemines’ condominium ranged from $33,000 to $45,000.
The trial court ruled in favor of the association and found that the Calemines failed to offer evidence of damages to support their claims that they were entitled to injunctive relief. Applying the rule of judicial deference defined in Lamden v. La Jolla Shores Clubdominium Homeowners Association, 21 Cal. 4th 249, 87 Cal. Rptr. 2d 237, 980 P.2d 940 (1999), the trial court found that the Calemines failed to offer evidence of damages to support their tort claims and to establish a right to enjoin the association’s reasonable and good faith decision. The court noted that the history of prior repairs demonstrated the association’s sincere desire to solve the problem. The trial court also determined that the decision whether to provide any additional waterproofing was a decision best left to the discretion of the board. The Calemines appealed.
In their appeal, the Calemines argued that the trial court improperly applied Lamden in deferring to the association’s decision to require individual homeowners to correct further water intrusion problems. They contended that even if the case were applicable, the court should have issued an injunction requiring the association to undertake action to alleviate further water damage as its duty to maintain the condominium common areas. The appeals court found no merit in these arguments.
The court of appeals noted that the CC&Rs imposed a duty of maintaining, operating and managing the common areas of the condominium. In Lamden, the California Supreme Court adopted a rule of judicial deference to community association board decision-making to apply when owners in common interest communities seek to litigate maintenance decisions entrusted to the discretion of the board. That precedent established that:
[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 statute, 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.
The appeals court saw no basis to disturb the trial court’s conclusion that the members of the association’s board appeared sincerely interested in the well-being of the association membership as a whole and seriously grappled with their decision not to fund further repairs through levy of a special assessment. It rejected the Calemines’ argument that Lamden did not apply.
The appeals court cited California case law that stresses that someone who purchases a unit in a common interest community, having knowledge of the power of its owners association, accepts a risk that the association’s power may be used in a way that harms that individual for the benefit of the community.
The appeals court affirmed the trial court’s judgment.
Note: SwedelsonGottlieb partner David Swedelson was an expert witness for the association at trial in this case. Direct comments or questions to David at dcs@sghoalaw.com.