Brenner v. Peet-Thompson CA2/2 ( 2015 )


Menu:
  • Filed 12/7/15 Brenner v. Peet-Thompson CA2/2
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
    California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
    publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
    or ordered published for purposes of rule 8.1115.
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION TWO
    LOIS BRENNER,                                                        B261284
    Plaintiff and Appellant,                                    (Los Angeles County
    Super. Ct. No. SC120771)
    v.
    JANIE PEET-THOMPSON et al.,
    Defendants and Respondents.
    APPEAL from a judgment of the Superior Court of Los Angeles County.
    Lisa Hart Cole, Judge. Affirmed.
    Cohon & Pollak, Jeffrey M. Cohon, Kristina S. Keller for Plaintiff and Appellant.
    Slaughter, Reagan & Cole, Barry J. Reagan, Gabriele M. Lashly for Defendants
    and Respondents.
    ___________________________________________________
    A condominium owner sued her homeowners’ association and its directors for
    damage to her unit due to improper maintenance or repair of the common areas. The trial
    court dismissed the owner’s breach of fiduciary duty claim against the directors, while
    allowing her to proceed with her claims against the association. We affirm.
    ALLEGATIONS
    Lois Brenner is a member of the Belair Courtside Condominiums Owners’
    Association (the COA), a California nonprofit mutual benefit corporation. Under the
    Declaration of Covenants, Conditions & Restrictions (CC&Rs), the COA is responsible
    for the maintenance and repair of all common areas. The COA contracts with an outside
    company, Westcom, to manage its property and business affairs and help discharge the
    COA’s duty to maintain the common areas.
    The COA and Westcom failed to discharge their duties. Water infiltrated the
    improperly maintained or sealed roof and skylights; mold grew inside of walls; framing,
    drywall, insulation and ceilings developed dry rot, water damage, and fungal infections.
    These conditions led to airborne mold in Brenner’s unit, a health nuisance. The COA
    failed to waterproof the garage and other subterranean areas, leading to water intrusion
    and deterioration. The COA’s board of directors spent reserve funds for purposes other
    than the repair, restoration, replacement or maintenance of the common areas.
    Brenner tried to resolve her dispute with the COA by requesting repairs to her unit
    and the common areas. The COA, through its board of directors, refused to repair the
    damage and disclaimed responsibility, in violation of the CC&Rs.
    PROCEDURAL HISTORY
    Brenner filed suit against the COA, Westcom, and four individuals who served on
    the COA’s board of directors: respondents Janie Peet-Thompson, Earl Feldhorn, Arlene
    Posen, and Nancy Koss.1 Only one cause of action, for breach of fiduciary duty, is
    alleged against respondents.
    1     Brenner indicates that the damage to her unit was the subject of a prior lawsuit,
    which settled. Defendants undertook repairs pursuant to the settlement agreement, but
    2
    On demurrer, the trial court allowed Brenner to proceed with her negligence claim
    against the COA and Westcom. As to the claim against respondents, the court sustained
    demurrers without leave to amend because respondents’ “only involvement is as board
    members and it is the COA that owes the fiduciary duty to residents, not the individual
    board members.” The court dismissed the complaint as to respondents and entered
    judgment in their favor. Brenner appeals.
    DISCUSSION
    The judgment is a final adjudication of Brenner’s claim against respondent
    directors. (Code Civ. Proc., § 579; Johnson v. Hayes Cal Builders, Inc. (1963) 
    60 Cal. 2d 572
    , 578; Vescovo v. New Way Enterprises, Ltd. (1976) 
    60 Cal. App. 3d 582
    , 586.)
    Appeal lies from a dismissal after demurrers are sustained without leave to amend.
    (Code Civ. Proc., §§ 581d, 904.1, subd. (a)(1); Serra Canyon Co. v. California Coastal
    Com. (2004) 
    120 Cal. App. 4th 663
    , 667; Tanen v. Southwest Airlines Co. (2010) 
    187 Cal. App. 4th 1156
    , 1162.) Review is de novo, applying our independent judgment to
    determine if a cause of action has been stated. (Desai v. Farmers Ins. Exchange (1996)
    
    47 Cal. App. 4th 1110
    , 1115.)
    A homeowners’ association is responsible for the management and maintenance of
    common areas, through its board of directors. (Civ. Code, § 4775; Frances T. v. Village
    Green Owners Assn. (1986) 
    42 Cal. 3d 490
    , 496 (Frances T.).) Directors have “‘wide
    latitude in their handling of corporate affairs because the hindsight of the judicial process
    is an imperfect device for evaluating business decisions [and] shareholders to a very real
    degree voluntarily undertake the risk of bad business judgment’” such that “‘anyone who
    buys a unit in a common interest development with knowledge of its owners association’s
    discretionary power accepts “the risk that the power may be used in a way that benefits
    plaintiff claims that they used substandard materials and unqualified workers. Plaintiff
    may be foreclosed by principles of res judicata from relitigating matters that were the
    subject of the prior lawsuit.
    3
    the commonality but harms the individual.”’” (Lamden v. La Jolla Shores Clubdominium
    Homeowners Assn. (1999) 
    21 Cal. 4th 249
    , 259, 269 (Lamden).)
    California follows “a rule of judicial deference to community association board
    decisionmaking that applies . . . when owners in common interest developments seek to
    litigate ordinary maintenance decisions entrusted to the discretion of their associations’
    boards of directors.” 
    (Lamden, supra
    , 21 Cal.4th at p. 253.) In Lamden, a homeowner
    sued for diminution in value and structural damage because the association refused to
    fumigate a termite infestation. (Id. at pp. 253-254.) The Supreme Court deferred to the
    association’s decision to spot-treat, because using “secondary treatment” to address the
    infestation represented a good faith effort to further the purposes of the common interest
    development. (Id. at pp. 264-265.) The Court acknowledged that the Legislature
    codified the business judgment rule in the Corporations Code, “shielding individual
    directors” of nonprofit mutual benefit corporations from liability. (Lamden, at p. 259,
    fn. 6.)
    A director must perform duties in good faith and “in a manner such director
    believes to be in the best interests of the corporation and with such care, including
    reasonable inquiry, as an ordinarily prudent person in a like position would use under
    similar circumstances.” (Corp. Code, § 7231, subd. (a); Finley v. Superior Court (2000)
    
    80 Cal. App. 4th 1152
    , 1157.) A director is entitled to rely upon information or reports
    from those “believe[d] to be reliable and competent” and “within such person’s
    professional or expert competence.” (Corp. Code, § 7231, subd. (b).) A director who
    follows these rules “shall have no liability based upon any alleged failure to discharge the
    person’s obligations as a director . . . .” (Corp. Code, § 7231, subd. (c).)
    Corporations Code section 7231 establishes “‘a presumption that directors’
    decisions are based on sound business judgment[, which] can be rebutted only by a
    factual showing of fraud, bad faith or gross overreaching.’” (Ritter & Ritter, Inc. Pension
    & Profit Plan v. The Churchill Condominium Assn. (2008) 
    166 Cal. App. 4th 103
    , 123.)
    “[W]hile a condominium association may be liable for its negligence, a greater degree of
    fault is necessary to hold unpaid individual condominium board members liable for their
    4
    actions on behalf of condominium associations.” (Id. at p. 121.) A plaintiff must present
    “‘affirmative allegations of fact which, if proven would establish fraud, bad faith,
    overreaching or an unreasonable failure to investigate material facts.’” (Berg & Berg
    Enterprises, LLC v. Boyle (2009) 
    178 Cal. App. 4th 1020
    , 1046.) Conclusory allegations
    of improper motives are not sufficient, nor is it enough to generally allege a failure to
    conduct an investigation. (Id. at p. 1045.)
    Directors’ liability must “stem[] from their own tortious conduct, not from their
    status as directors or officers of the enterprise.” (Frances 
    T., supra
    , 42 Cal.3d at p. 503.)
    Brenner specifically alleges that respondents were “acting in their respective capacities as
    members of the Board of Directors and as President of the Association” when they
    committed the alleged wrongdoing. There is no claim made that respondents, as
    individuals, breached a common law duty “to refrain from conduct that imposes an
    unreasonable risk of injury on third parties.” (Id. at p. 507.) Unlike Frances T., this is
    not a case in which a condominium project with “‘exceedingly poor’” lighting was
    undergoing an “‘exceptional crimewave’” such that the directors should have known that
    a homeowner might be raped and robbed in her unit. (Id. at pp. 496-498.)
    According to Brenner, as directors, respondents “have not fulfilled their duty to
    maintain and repair the common areas of the Belair Courtside and other areas under the
    Association’s control, have not fulfilled their duties to repair damage to [Brenner’s unit],
    to repair the damages caused by the Association’s breach of its duty and repair and
    adequately maintain the common areas, and have used reserve funds for purposes other
    than the repair and maintenance of the Belair Courtside. Defendants . . . have further
    breached their fiduciary duties by engaging in unlawful conduct which has prevented
    Plaintiff from procuring a mold clearance.” These acts show that respondents “did not
    exercise the care required of directors to properly maintain the Belair Courtside, did not
    promptly, fairly and faithfully remediate and repair [plaintiff’s unit] when it was
    damaged as a result of the Association’s failure to maintain the common areas and areas
    under its control, and have not acted as faithful stewards of the reserve funds belonging to
    the Association.”
    5
    If, as here, a complaint alleges only that the bylaws and CC&Rs “delegated to the
    directors a general duty to conduct the affairs of the organization, including the control
    and management of its property,” then plaintiff has not stated a cause of action.
    (Frances 
    T., supra
    , 42 Cal.3d at p. 506.) Brenner seeks “to litigate ordinary maintenance
    decisions entrusted to the discretion” of the COA’s directors. 
    (Lamden, supra
    , 21 Cal.4th
    at p. 253.) Respondents are shielded from liability because the presumption that their
    decisions were based on sound business judgment is not rebutted by facts showing fraud,
    bad faith or gross overreaching.
    Plaintiff did not assert a negligence claim against respondents. Instead, she sued
    them for breach of fiduciary duty. Homeowners may sue the association for breach of
    fiduciary duty (Cohen v. Kite Hill Community Assn. (1983) 
    142 Cal. App. 3d 642
    , 650-
    651, 652, 655) and the association may sue directors for breach of fiduciary duty
    (Raven’s Cove Townhomes, Inc. v. Knuppe Development Co. (1981) 
    114 Cal. App. 3d 783
    ,
    800-801). With respect to homeowners, however, directors must exercise reasonable care
    under Corporations Code section 7231. “The directors had no fiduciary duty to exercise
    their discretion one way or the other . . . so long as their conduct conformed to the
    standard set out in [Corporations Code] section 7231. Since a good faith mistake in
    business judgment does not breach the statutory standard,” plaintiff failed to allege a
    cause of action for breach of fiduciary duty. (Frances 
    T., supra
    , 42 Cal.3d at p. 514.)
    At oral argument, Brenner suggested that recently enacted Civil Code section 5800
    alters case law governing the liability of directors. She is mistaken: the statute expressly
    disavows any legislative intent “to expand, or limit, the fiduciary duties owed by
    directors or officers.” (Civ. Code, § 5800, subd. (f)(2).)
    Plaintiff’s complaint does not state a cause of action for breach of fiduciary duty
    against respondents, or, for that matter, a common law claim of negligence.2 At best,
    2       Even if plaintiff wanted to assert a negligence claim against respondents, she
    failed to obtain permission from the trial court before filing her complaint, as is required
    when someone wishes to make a claim “against a person serving without compensation
    as a director or officer of a nonprofit corporation . . . on account of any negligent act or
    6
    Brenner’s claim is that the COA breached a duty owed to her to maintain the common
    area, which is, in fact, the claim that is proceeding in the trial court.
    Leave to amend is “open on appeal” if there is a reasonable possibility that an
    amendment would cure any defects. (Code Civ. Proc., § 472c, subd. (a); Schifando v.
    City of Los Angeles (2003) 
    31 Cal. 4th 1074
    , 1081; Aubry v. Tri-City Hospital Dist.
    (1992) 
    2 Cal. 4th 962
    , 967.) “The burden of proving such reasonable possibility is
    squarely on the plaintiff.” (Blank v. Kirwan (1985) 
    39 Cal. 3d 311
    , 318.) The papers
    must spell out how an amendment can cure a defect or change the legal effect of the
    pleading. (Long v. Century Indemnity Co. (2008) 
    163 Cal. App. 4th 1460
    , 1467-1468.)
    Plaintiff requested leave to amend below, without offering any additional facts
    indicating how her pleading could survive demurrer. On appeal, plaintiff repeats that she
    should be allowed leave to amend, without offering any new facts. Plaintiff has not
    carried her burden of proving a reasonable possibility that an amendment would cure
    defects or change the legal effect of the complaint.
    DISPOSITION
    The judgment is affirmed. As the prevailing parties on appeal, respondents may
    recover their costs from appellant by motion in the trial court.
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
    BOREN, P.J.
    We concur:
    ASHMANN-GERST, J.
    HOFFSTADT, J.
    omission by that person within the scope of that person’s duties as a director acting in the
    capacity of a board member . . . .” (Code Civ. Proc., § 425.15, subd. (a).)
    7
    

Document Info

Docket Number: B261284

Filed Date: 12/7/2015

Precedential Status: Non-Precedential

Modified Date: 4/18/2021