Marina Pacifica Homeowners Ass'n v. Southern California Financial Corp. , 2014 D.A.R. 16 ( 2014 )

Filed 12/16/14
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
MARINA PACIFICA HOMEOWNERS B251379
ASSOCIATION,
(Los Angeles County
Plaintiff and Appellant, Super. Ct. No. NC052700)
v.
SOUTHERN CALIFORNIA FINANCIAL
CORPORATION,
Defendant and Appellant,
MARIANTHI LANSDALE et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County, Patrick T.
Madden, Judge. Affirmed in part; reversed in part.
Locke Lord, Christopher J. Bakes and Daniel A. Solitro for Plaintiff and Appellant.
June Babiracki Barlow and Neil Kalin for California Association of Realtors as
Amicus Curiae on behalf of Plaintiff and Appellant.
Greenberg Traurig, Scott D. Bertzyk, Adam Siegler and Matthew R. Gershman for
Defendant and Appellant and Defendants and Respondents.
* Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is
certified for publication with the exception of parts 1.b. and 2 of the Discussion.
This litigation between plaintiff Marina Pacifica Homeowners Association (the
HOA) and defendants William Lansdale1 and Southern California Financial Corporation
(SCFC) concerns the Marina Pacifica Condominium Project (Marina Pacifica) in Long
Beach, California. SCFC appeals, and the HOA cross-appeals, from the judgment after a
bench trial. The parties’ dispute centers around a monthly fee the residents of Marina
Pacifica pay to the developers of the condominiums, or the developers’ successor in interest,
called the “assignment fee.” We affirm in part and reverse in part.
FACTUAL AND PROCEDURAL BACKGROUND
1. Marina Pacifica’s Development and Pertinent Transactions
Marina Pacifica is a 570-unit complex on the Long Beach waterfront. At the time of
Marina Pacifica’s construction in the early 1970’s, the McGrath Trust owned the land on
which the complex was built. Lansdale obtained an option on a ground lease from the
McGrath Trust. He contributed the ground lease option to Marina Pacifica Limited
Partnership (the limited partnership). The limited partners in this entity were Lansdale, Abe
Reider, and William Dawson. The limited partnership exercised the ground lease option to
develop and construct the Marina Pacifica complex.
The ground lease was subdivided into 570 identical leases, one for each
condominium unit, entitled “Condominium Common Area and Unit Space Lease” (the unit
lease). The McGrath Trust was the lessor and the limited partnership was the lessee under
each unit lease. The unit leases were for a term of 68 years and would expire on
September 30, 2041. When the limited partnership sold a condominium unit, it and the
purchaser executed a standard document assigning the unit lease to the purchaser (the lease
assignment). If unit owners sold their units, the seller and the subsequent purchaser
1 We were advised during the pendency of this appeal that Lansdale had passed away.
Accordingly, we entered an order on July 30, 2014, substituting in place of Lansdale the
cospecial administrators of his estate, William Kozaites and Marianthi Lansdale. This
substitution of parties notwithstanding, for convenience, we will continue to refer to
“Lansdale” throughout this opinion. Occasionally, we will use “defendants” to refer to
Lansdale and SCFC collectively.
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executed a standard document assigning the seller’s rights, interests, and obligations under
the unit lease to the subsequent purchaser (resale assignment).
Thus, unit owners purchased an ownership interest in their condominium units plus
an undivided leasehold interest in the land underlying the complex. The unit leases required
owners to make two monthly payments: rent payable to the landowner (the McGrath Trust),
and an “assignment fee” payable to the developer (the limited partnership). As we explain
below, both of these payments were to be nominal from the early 1970’s to 2006. In 2006,
however, the rent and assignment fee would be recalculated so that together, they would
equal 10 percent of the value of the land underlying the units.
Rent: Monthly rent was $15 from June 1973 to September 2006. Under paragraph
3.(b) of the unit lease, from October 2006 to September 2021, monthly rent would become
the greater of (1) $25 or (2) 1/12th of 6 percent of the fair market value of the leasehold
premises, as of October 1, 2006.
Assignment Fee: “[F]or and in consideration of” the limited partnership’s
assignment of its interest in the leasehold estate to unit owners, the unit owners and each of
their successors and assigns would pay to the limited partnership “a continuing assignment
fee” under paragraph 4 of the unit lease. Until September 2006, the assignment fee was $13
to $35 depending on the unit and was subject to cost of living increases every five years.
From October 2006 to September 2021, the monthly assignment fee would “be equal to the
amount, if any, by which one-twelfth (1/12) of ten percent (10%) of the fair market value of
the leasehold premises on October 1, 2006 exceed[ed] the monthly rent payable under part
(b) of Paragraph 3” of the unit lease.2
The unit lease stated the provisions of the assignment fee paragraph were “intended
by the parties hereto to be separate and independent from all remaining provisions” of the
unit lease, and would “constitute, and be construed as creating, a separate contractual
2 Both the rent and assignment fee were to be recalculated again for the period October
2021 to September 2041 using the same formulas described above, except that the fair
market value of the leasehold premises was to be determined as of October 1, 2021.
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obligation of the Assignee of [the limited partnership] and all of the successors and assigns
of said assignee . . . .”
A copy of the unit lease itself was not recorded. But in May 1973, the limited
partnership caused a “Memorandum of Condominium Common Area and Unit Space
Leases” to be recorded with the Los Angeles County Recorder’s Office. This memorandum
was recorded against the entire Marina Pacifica property and incorporated the unit leases by
reference. Additionally, each lease assignment or resale assignment was recorded against its
respective condominium unit. The lease assignments and resale assignments also
incorporated the unit leases by reference.
In connection with the purchase of any unit, the HOA gave each purchaser a packet
of documents. Among other things, the packet contained sample copies of the unit lease and
the lease assignment and an “information sheet” stating the purchaser’s monthly rent and
assignment fee would be readjusted on October 1, 2006, and October 1, 2021, in accordance
with the fair market value of the leasehold premises on those dates. The information sheet
also directed purchasers to the relevant paragraphs and page numbers of the unit lease for
the rent and assignment fee. The parties to this lawsuit stipulated that each purchaser of a
Marina Pacifica unit had notice of the unit lease and its contents, including the specific
paragraph setting forth the assignment fee.
Unit owners originally paid the assignment fee to the limited partnership. When the
limited partnership completed developing and selling all the units, the partners dissolved the
entity. Upon dissolution, the limited partners each received a share of the assignment fee—
Lansdale received 43.75 percent, Dawson received 37.75 percent, and Reider received 18.5
percent.
In December 1999, the HOA purchased the land underlying Marina Pacifica from the
McGrath Trust for $17 million. Each unit owner then paid the HOA for the owner’s pro rata
share of the land. As a result of this purchase, the unit owners no longer pay any rent under
the unit lease.
From 1995 to 2005, the HOA attempted to negotiate with Lansdale, Dawson, and
Reider to buy their interests in the assignment fee. The HOA wanted to eliminate the
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obligation to pay the assignment fee before the October 2006 adjustment. The HOA
successfully negotiated with Dawson and Reider. In 2000, it purchased their interests
(collectively, 56.25 percent) for $5 million. It was unable to reach an agreement with
Lansdale to buy his 43.75 percent interest in the assignment fee.
2. Appraisal Litigation
As discussed, the adjustments of the rent and assignment fee required the parties to
determine the fair market value of the leasehold premises. The unit lease provided that the
lessor—originally, the McGrath Trust—and the HOA would each select an appraiser, and
their two appraisers would agree on a third appraiser to render an appraisal of the fair
market value. After the HOA purchased the land from the McGrath Trust, it took the
position that the interests of the lessor and lessee under the unit lease had merged, and it
thus had the right to select an appraiser unilaterally for purposes of calculating the
assignment fee. Lansdale disagreed and asserted he had a right to participate in the
appraisal process by selecting one of the two initial appraisers. In 2005, Lansdale and the
HOA filed dueling pleadings seeking declaratory relief to resolve this dispute (appraisal
litigation).
The appraisal litigation went to trial. The HOA stipulated for purposes of the trial
that Lansdale was the sole remaining assignee of the limited partnership and had “the sole
right to collect his portion of the monthly Assignment Fees.” Moreover, it stipulated “[t]he
Assignment fee owned by Lansdale remains payable and Lansdale is the owner of 43.75%
of the Assignment fee” (capitalization omitted).
In the court’s statement of decision in the appraisal litigation, the court noted: “The
monthly ‘Assignment Fee’ is a separate contractual obligation owed to [Lansdale] over the
term of the Lease. The Assignment Fee is binding on the original purchasers and any
subsequent purchasers in the Marina Pacifica condominium project.”
The court found the interests of the lessor and lessee under the unit lease had merged
and “the leasehold interest ha[d] been annihilated and no longer exist[ed].” There was no
longer any lessor to appoint an appraiser, and therefore the appraiser-appointment method
described in the unit lease could not be followed. The court held it would be inequitable and
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unconscionable to permit only one party to appoint the appraiser, insofar as the original
parties to the unit lease agreed the fair market value of the leasehold premises would be
determined by an independent appraiser. The court determined it should appoint an
independent appraiser pursuant to Code of Civil Procedure Section 1281.6 (providing a
method for appointing an arbitrator, if the agreed method fails or for any reason cannot be
followed).
On appeal, Division Two of this court affirmed the judgment in the appraisal
litigation. (Lansdale v. Marina Pacifica Homeowners Association (Aug. 14, 2007,
B192520) [nonpub. opn].)
Lansdale and the HOA participated in arbitration to implement the terms of the
court’s judgment. The court entered an order confirming the arbitrator’s award, holding
that, “[a]s of October 1, 2006, the fair market value of the property used for purpose of
calculating the Assignment Fee due under the Lease . . . is the sum of $60,615,500.”3
3. 2008 Assignment Fee Billing and Commencement of the Instant Action
Lansdale assigned his 43.75 percent interest in the assignment fee to codefendant
SCFC in January 2008. After the court affirmed the arbitrator’s award in the appraisal
litigation, SCFC began billing the unit owners for its share of the assignment fee in
December 2008.
To review, the unit lease stated the monthly assignment fee was the difference
between 1/12th of 10 percent of the land’s fair market value and the monthly rent payable
under the unit lease. SCFC’s accountants adjusted the assignment fee for the newly
appraised fair market value of the land and also to reflect that unit owners no longer paid
rent since they had purchased the land. The accountants therefore calculated the total
monthly assignment fee owing to SCFC as 43.75 percent of:
3 This dollar figure was the fair market value of the entire tract of land underlying
Marina Pacifica. To determine the fair market value of the “leasehold premises” for just one
unit owner, the dollar figure could be multiplied by the unit owner’s pro rata share of the
common area.
6
10% x $60,615,500 [fair market value] – $0 [monthly rent unit owners actually paid]
12
We will refer to this method of calculating the assignment fee as the “10 percent
formulation.”
The HOA sent unit owners a notice instructing them not to pay SCFC’s bill and
commenced this action three months later. The HOA’s first amended complaint (FAC)
alleges numerous causes of action for declaratory relief, breach of contract, breach of the
covenant of good faith and fair dealing, reformation, and restitution. The gravamen of the
FAC is that the assignment fee is invalid or unenforceable for several reasons, or assuming
it is valid and enforceable, SCFC’s billing vastly overstated the amount owing.
The HOA alleges the unit owners’ purchase of the underlying land extinguished the
unit lease—that is, the purchase caused a merger of the landlord’s and tenants’ estates. And,
insofar as the unit lease stated that the assignment fee provision was a “separate contractual
obligation,” the HOA alleges the pertinent provision did not contain any other contractual
language and did not recite any consideration flowing to the unit owners for payment of the
assignment fee. As such, the assignment fee provision fails as a contract and is not an
enforceable obligation.
The HOA also alleges the assignment fee is a “transfer fee” as defined by Civil Code
section 1098,4 and because defendants did not comply with the requirements of sections
1098 and 1098.5, SCFC could no longer collect the assignment fee after December 31,
2008. Thus, some of the causes of action for declaratory relief seek a declaration that the
assignment fee is invalid after December 31, 2008, as a transfer fee under sections 1098 and
1098.5. Others seek a declaration that the assignment fee is invalid from an earlier date due
to the merger of estates and extinguishment of the unit lease, the failure of consideration, or
unconscionability. Still other causes of actions seek a declaration as to the proper
calculation of the assignment fee, assuming it is valid for some period. The HOA alleges
4 Further undesignated statutory references are to the Civil Code.
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SCFC is not entitled to an amount based on 10 percent of the underlying land’s value
because it must deduct the rent the unit owners would have paid under the lease, had they
not bought out the landowner. Because the monthly rent payable was 1/12th of 6 percent of
the land’s value, the HOA alleges SCFC is entitled, at most, to 1/12th of 4 percent of the
land’s value. In other words, the total monthly assignment fee owing to SCFC was 43.75
percent of:
10% x $60,615,500 – 6% x $60,615,500 [monthly rent unit owners = 4% x $60,615,500
12 12 would have paid] 12
We will refer to this method of calculating the assignment fee as the “4 percent
formulation.” The HOA alleges the 4 percent formulation is the correct interpretation of the
assignment fee provision.
The HOA’s causes of action for breach of contract and breach of the covenant of
good faith and fair dealing allege defendants breached the unit lease and the covenant by
billing unit owners under the 10 percent formulation, rather than under the “agreed upon” 4
percent formulation.
4. Motions for Summary Adjudication
Defendants filed three motions for summary adjudication. The court denied two and
granted one in part based on the statute of limitations. The court granted summary
adjudication as to any claims, on any ground, that the assignment fee was void from its
inception and that restitution may be had based on these claims. The court also granted the
motion as to any claims running from the merger of estates in 1999. Specifically, the court
granted summary adjudication as to the ninth, 10th, 11th, 12th, and 14th causes of action,
except to the extent the ninth cause of action related to SCFC’s calculation of the
assignment fee in 2008. The HOA’s cross-appeal relates to the court’s summary
adjudication ruling.
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5. Phases One and Two of Trial and Statement of Decision
The court bifurcated the trial into several phases and tried phases one and two first.
These phases dealt with (1) the remaining arguments that the assignment fee was invalid,
and (2) the proper calculation of the assignment fee, if it was valid. The trial court issued a
statement of decision on phases one and two setting forth mixed results for the parties. We
summarize the pertinent portions of the statement of decision.
a. Application of the Transfer Fee Statutes (Sections 1098, 1098.5)
The court held the assignment fee was a transfer fee within the meaning of section
1098, and none of the statutory exceptions set forth in section 1098 applied. Section 1098.5
states recording requirements the receiver of a transfer fee must meet to collect a fee
imposed prior to January 1, 2008. The court held defendants failed to meet these
requirements, and consequently, the assignment fee was not collectible at all after
December 31, 2008, under the terms of the statute. The court noted the application of the
transfer fee statutes to the assignment fee was a “pure question of law,” and it therefore was
not relying on any of the evidence presented at trial to resolve the issue.
b. Proper Calculation of the Assignment Fee for the Period of Its Validity
Because the assignment fee was collectible through December 31, 2008, the court
determined the proper calculation for the fee for the 2006 escalation. The court held the 4
percent formulation urged by the HOA was correct, not the 10 percent formulation as urged
by defendants. It found:
“The parties never contemplated elimination of rent at the inception of the
agreement. Defendants[’] literal application of the formula results in a windfall. It would
be entirely anomalous that by purchasing the property and eliminating the lease, the unit
owners would be required to pay even more for an assignment of an interest no longer in
existence. The law abhors absurd results. [¶] . . . [¶]
“It would be absurd for a party to pay an increased amount after the lease was
extinguished. There is nothing in the voluminous record which would suggest such was the
mutual intent of the parties. [T]he purchase of the land by the unit owners was never
contemplated at the time the documents were drafted. The clear intent of the parties was to
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adjust the amount of the assignment fee as the value of the leasehold increased or decreased
over time.”
The court held the “only reasonable and fair result” was to enforce the assignment fee
provision as if the monthly rent were still due because “[t]hat was the mutual understanding
of the parties when the contract was made - that some monthly rent payable would be due
until the year 2041.” Thus, the 4 percent formulation, which accounted for a monthly rent
payment, was the correct formulation.
c. Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing
The court found there was evidence Lansdale had represented during the appraisal
litigation that he used the 4 percent formulation to calculate the assignment fee. Yet, when
SCFC began billing the unit owners in 2008, it used the 10 percent formulation, and
defendants contended in this case that the 10 percent formulation was correct. The court
held that although it determined the 4 percent formulation was correct as opposed to the 10
percent formulation, defendants’ conduct did not constitute breach of contract or breach of
the implied covenant. Further, the instant litigation was part of a continuum of negotiations
and actions concerning the assignment fee that went back to the appraisal litigation and
earlier. The court held defendants’ representations in both the appraisal litigation and the
instant litigation were absolutely privileged under section 47, subdivision (b) (the litigation
privilege).
d. Lack of Consideration
The court held the escalation provision for the assignment fee (i.e., the fee increase in
2006 and 2021) did not fail for lack of consideration. The original unit owners and their
successors “received consideration in the form of a unit within the development. They
made that purchase subject not only to a purchase price, but to other conditions and
covenants, including the assignment fee.” The court further held the covenant to pay the
assignment fee was separate from the unit lease itself. Therefore, the extinguishment of the
lease through the merger of estates did not create a failure of consideration.
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6. Judgment
When the trial court issued its tentative statement of decision, it ordered the parties to
meet and confer as to the amount owed to defendants based on the court’s findings. The
parties did so and submitted competing proposed judgments to the court. The court
reviewed the proposed judgments and objections to the proposed judgments and found some
payment issues on which the parties disagreed. It appointed a referee, the Honorable Carl J.
West (ret.), to resolve the disagreements.
After receiving the report and recommendation of the referee, the court entered
judgment on July 23, 2013. The judgment set forth the amount owing under the 4 percent
formulation for each unit owner and stated the unit owners collectively owed $2,436,818.03,
payable to SCFC, which included prejudgment interest at the rate of 7 percent per annum.
SCFC filed a timely notice of appeal. (Lansdale was not a party to this notice.) The HOA
filed a timely notice of cross-appeal.
DISCUSSION
1. SCFC’s Appeal
SCFC raises two main issues on appeal. First, it contends the court’s transfer fee
rulings were in error. SCFC argues the assignment fee is not a transfer fee under section
1098, and even if it were, several statutory exceptions apply such that it could collect the fee
after December 31, 2008. Second, it contends the 10 percent formulation, not the 4 percent
formulation, represents the correct method for calculating the assignment fee under the unit
lease.
a. The Assignment Fee Is a Transfer Fee, But a Statutory Exception Urged by SCFC
Applies
Before turning to the transfer fee statutes, we set forth some principles that guide our
interpretation of them. The relevant facts here are undisputed. When this is the case, the
construction of a statute and its applicability to the undisputed facts are questions of law we
review de novo. (County of San Bernardino v. Calderon (2007) 148 Cal.App.4th 1103,
1106.) When we interpret a statute, our goal is to ascertain the Legislature’s intent in
enacting the statute and effectuate the purpose of the statute. (Id. at p. 1108.) We always
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begin with the statutory language. (Ibid.) We construe the words in context and give them
their usual and ordinary meaning. (Ibid.) When the language is unambiguous, “‘we
presume the Legislature meant what it said,’” and the plain meaning of the statute governs.
(Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2005) 133
Cal.App.4th 26, 29.) If the statutory language is ambiguous—that is, it permits more than
one reasonable interpretation—we may consider extrinsic aids to interpretation. (Ibid.)
Thus, it is appropriate to resort to legislative history, an extrinsic aid, only when the
statutory language is ambiguous. (Ibid.) Ultimately, we “‘must select the construction that
comports most closely with the apparent intent of the Legislature, with a view to promoting
rather than defeating the general purpose of the statute . . . .’” (Wilcox v. Birtwhistle (1999)
21 Cal.4th 973, 977-978.)
Applying these principles, we conclude the assignment fee falls within the general
definition of a transfer fee, but a statutory exception applies to exclude the fee from the
definition. As a consequence, the transfer fee statutes do not bar SCFC from collecting the
assignment fee.
i. Definition of Transfer Fee
The first sentence of section 1098 defines a “‘transfer fee’” as “any fee payment
requirement imposed within a covenant, restriction, or condition contained in any deed,
contract, security instrument, or other document affecting the transfer or sale of, or any
interest in, real property that requires a fee be paid upon transfer of the real property.”
The parties do not dispute the assignment fee is a “fee payment requirement.”
Further, it is “imposed within a covenant, restriction, or condition contained in any deed,
contract, security instrument, or other document . . . .” (§ 1098.) A covenant is merely a
promise to render some performance. (Dillingham-Ray Wilson v. City of Los Angeles
(2010) 182 Cal.App.4th 1396, 1406, fn. 9.) The assignment fee is imposed within paragraph
4 of the unit lease, which contains a promise to pay the limited partnership an assignment
fee. (“[T]he assignee, and each successor and assign of such assignee, hereby promises and
agrees to pay to Marina Pacifica, a California limited partnership, or its order, a continuing
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assignment fee . . . .”) Accordingly, the assignment fee is imposed within a covenant
contained in a “contract . . . or other document.” (§ 1098.)
Focusing on the language that a transfer fee must be “imposed within a covenant,
restriction, or condition,” SCFC insists this language refers to what is “more commonly
known in the real-estate industry as CC&Rs.” SCFC asserts that because the assignment fee
is not imposed in the Marina Pacifica CC&R’s, the fee does not fall within the statutory
definition. We are not persuaded by this argument.
“CC&R’s” is a term of art referring to a specific type of document. “The
‘declaration’ or ‘declaration of covenants and restrictions’ is the term used to refer to the
recorded legal document that serves as the principal document in the creation of a common
interest development, such as a planned development or a condominium. . . . The
declaration is commonly referred to as the ‘declaration of covenants and restrictions,’ or the
abbreviated ‘CC&Rs.’” (Hanna & Van Atta, Cal. Common Interest Developments: Law &
Practice (Thomson Reuters 2014) § 2:16, citations omitted; see Smith-Chavez et al., Cal.
Civil Practice: Real Property Litigation (Thomson Reuters 2014) § 8:2 [“A condominium
project is governed by, among other documents, a Declaration of Covenants, Conditions,
and Restrictions (‘declaration’ or ‘CC & R’).”].) While the shorthand term “CC&R’s” is
used often in practice, the statutes creating the CC&R’s requirement for common interest
developments (such as condominium projects) do not use this shorthand term. These
statutes instead refer simply to the “declaration.” (§§ 4135, 4200, 4250, 4255.) SCFC
wants us to equate the phrase “a covenant, restriction, or condition” in section 1098 with the
required “declaration” described in other sections of the Civil Code relating to common
interest developments.
Assuming for the sake of argument that we were to follow SCFC’s reasoning, and
limit the language’s meaning to CC&R’s, the assignment fee nevertheless can be said to be
“imposed within” Marina Pacifica’s CC&R’s. Marina Pacifica recorded a “Declaration of
Restrictions” that it referred to as its “CC&R’s.” Among the obligations of unit owners set
forth in the CC&R’s is “compl[iance] in all respects with all of the provisions” of the unit
lease and lease assignment—which would, of course, include the provisions for payment of
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the assignment fee. By incorporating the owners’ obligations under these other documents,
Marina Pacifica’s CC&R’s imposed the obligation to pay the assignment fee just as surely
as the unit lease and lease assignment did.
Moving to the remaining pertinent clause in the definition of transfer fee, the
definition “requires a fee be paid upon transfer of the real property.” (§ 1098.) Section
1039, in the same statutory scheme as section 1098,5 defines “transfer” as “an act of the
parties, or of the law, by which the title to property is conveyed from one living person to
another.” SCFC contends that, construing sections 1098 and 1039 together, section 1098
means a fee paid upon the passing of title to real property. Because an assignment of a
leasehold estate does not pass title to real property, SCFC argues the assignment fee cannot
qualify as a transfer fee.
This argument is unconvincing. It takes a too narrow view of the assignment fee
without considering the reality of the whole transaction by which unit owners became
“owners.” It is true that, according to the unit lease, the assignment fee became operative
when the limited partnership assigned the unit lease. The lease assignments between the
limited partnership and the original unit owners therefore triggered the assignment fee. The
lease assignments accomplished more than a simple assignment of the leasehold estate,
however. The full title of the documents was “Assignment of Condominium Common Area
and Unit Space Lease and Grant Deed to Improvements on Leased Premises.” (Italics
added.) The lease assignments granted the unit owners, as tenants in common, an undivided
interest in all the improvements on the leased land. These improvements, consisting of the
condominium buildings among other things, were real property. (§§ 658, 660; Krouser v.
County of San Bernardino (1947) 29 Cal.2d 766, 769.) Consequently, the transaction did
involve the passing of title to real property. This transfer of title to the improvements and
the transfer of the leasehold estate were two necessary parts of the single transaction. There
5 Both section 1039 and section 1098 are part of the Civil Code, division 2
(“Property”), part 4 (“Acquisition of Property”), title 4 (“Transfer”). Section 1039 is part of
chapter 1 (“Transfers in General”) under title 4, while section 1098 is part of chapter 2
(“Transfer of Real Property”) under title 4.
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would have been no transfer of the leasehold estate unless a purchaser was buying title to
the real property at the same time.
Attorney Dennis Hill represented the limited partnership when it developed Marina
Pacifica. He created the legal structure for the project and drafted the relevant documents
(e.g., the unit lease and lease assignment). As he described it: “I developed the concept of
individual condominiums to be sold with a mixture of fee and leasehold interests. . . .
[¶] . . . [¶] . . . The ground and the air space were leased. All the structural components,
that’s the house, the foundation and roof and all that, would be sold in fee.” Hill described
the assignment fee as “part of the overall consideration for transfer of the unit.” The
package of documents provided to each unit purchaser described the transaction in much the
same way. The package began with the sentence: “Each Marina Pacifica residential
condominium consists of a leasehold interest in land and air space and title to the residential
buildings and other structural improvements situated upon and within said land and air
space.” Thus, the transaction both transferred title to real property and triggered the
assignment fee.
As the trial court characterized it in the statement of decision, “[t]he original
purchaser became obligated to pay the assignment fee upon the initial transfer of the unit
from the developers to the purchaser.” Lansdale’s testimony was consistent with this idea
that the assignment fee was triggered when the unit owners purchased their units. When
asked whether “the purpose of the assignment fee in [his] mind was to compensate [him] for
the opportunity to purchase the units at Marina Pacifica,” he replied with an unqualified
“[y]es.” The undisputed evidence brought the assignment fee within the definition of a
transfer fee under section 1098.
We do not think the language of the statute is ambiguous such that we must resort to
legislative history to interpret it. Nevertheless, we note the assignment fee is so similar to
an example in the legislative history that there can be little doubt the Legislature intended
section 1098 to apply to a case like this. The only published decision to interpret section
1098 is Fowler v. M&C Assn. Management Services, Inc. (2013) 220 Cal.App.4th 115215
(Fowler).6 Examining the legislative history, the Fowler court explained that examples of
transfer fees included a “fee of one-half of 1 percent of the sales price of homes going to a
private land trust to buy other land to be held as open space, a transfer fee to fund
community projects, open space and habitat preservation, and a transfer fee to fund
homeless shelters. The bill analysis also targeted some transfer fees that ‘have also been
used as a mechanism for the owner of a parcel of property to receive a steady stream of
income from their property after it had been sold.’” (Id. at p. 1158.) The assignment fee is
just like this last example, a fee intended to provide a future, steady stream of income for the
owner of property. The unit lease made the fee “a continuing assignment fee” scheduled for
monthly payment until the expiration date of the unit lease in 2041. Reider, who owned
18.5 percent of the assignment fee income at one time, credited himself with the idea for the
assignment fee and said that he conceived of the fee as “a nice, easy way to create a cash
flow stream” for the limited partnership and its partners.
In sum, we think the assignment fee falls within the general definition of a transfer
fee set forth in the first sentence of section 1098. The remainder of section 1098, however,
excludes certain fees from the definition. We turn now to these exceptions.
ii. Substantial Compliance Exception to Definition of Transfer Fee
Section 1098 exempts nine categories of fees from the definition of a transfer fee.
(§ 1098, subds. (a)-(i).) SCFC contends several of the exceptions apply in this case,
including one we refer to as the substantial compliance exception. We agree the substantial
compliance exception applies and thus do not consider the remaining exceptions urged by
SCFC.
Section 1098.5, subdivision (a), deals with the notice required to collect transfer fees
after a certain date. For fees imposed prior to January 1, 2008, the receiver of the fee had
until December 31, 2008, to record against the real property “a separate document that
meets all of the following requirements:”
6 Fowler dealt primarily with an exception to the definition of transfer fee that is not
relevant for our purposes. (Fowler, supra, 220 Cal.App.4th at p. 1156.)
16
“(1) The title of the document shall be ‘Payment of Transfer Fee Required’ in at
least 14-point boldface type.
“(2) The document shall include all of the following information:
“(A) The names of all current owners of the real property subject to the transfer fee,
and the legal description and assessor’s parcel number for the affected real property.
“(B) The amount, if the fee is a flat amount, or the percentage of the sales price
constituting the cost of the fee.
“(C) If the real property is residential property, actual dollar-cost examples of the fee
for a home priced at two hundred fifty thousand dollars ($250,000), five hundred thousand
dollars ($500,000), and seven hundred fifty thousand dollars ($750,000).
“(D) The date or circumstances under which the transfer fee payment requirement
expires, if any.
“(E) The purpose for which the funds from the fee will be used.
“(F) The entity to which funds from the fee will be paid and specific contact
information regarding where the funds are to be sent.
“(G) The signature of the authorized representative of the entity to which funds from
the fee will be paid.” (§ 1098.5, subd. (a).)
If the receiver of the transfer fee failed to record the required document by
December 31, 2008, the receiver could not collect the fee on or after January 1, 2009.
(§ 1098.5, subd. (a).) None of the entities or individuals entitled to collect the assignment
fee recorded the required document before December 31, 2008.
SCFC asserts it could still collect the fee after December 31, 2008, because the
substantial compliance exception applies. Pursuant to this exception, a transfer fee does not
include “[a]ny fee reflected in a document recorded against the property on or before
December 31, 2007, that is separate from any covenants, conditions, and restrictions, and
that substantially complies with subdivision (a) of Section 1098.5 by providing a
prospective transferee notice of the following:”
“(1) Payment of a transfer fee is required.
“(2) The amount or method of calculation of the fee.
17
“(3) The date or circumstances under which the transfer fee payment requirement
expires, if any.
“(4) The entity to which the fee will be paid.
“(5) The general purposes for which the fee will be used.” (§ 1098, subd. (i).)
In this case, the unit lease contains all of the above information in paragraph 4 of the
document. That paragraph sets forth the obligation to pay the assignment fee, the method
for calculating the fee (1/12th of 10 percent of the fair market value of the land, minus the
monthly rent payable), the fee’s expiration date (the expiration of the leasehold term, or
September 30, 2041), the entity to which the fee will be paid (the limited partnership, “or its
order”), and the general purpose of the fee (“for and in consideration of” the limited
partnership’s assignment of its interest in the leasehold estate).
The unit lease itself was not recorded against the property. But numerous documents
recorded against the property incorporated the unit lease by reference, including the
“Memorandum of Condominium Common Area and Unit Space Leases,” the lease
assignments, and the resale assignments. The lease assignments or resale assignments were
recorded against the respective units to which they related each time a unit changed hands.
The lease assignments and resale assignments contained provisions in which the unit owners
promised to pay the assignment fee set forth in paragraph 4 of the unit lease. Thus, the
assignment fee was “reflected” in these documents recorded against the property on or
before December 31, 2007. (§ 1098, subd. (i).)
Moreover, these recorded documents provided notice of the necessary information in
that they provided constructive notice of the contents of the unit lease. Under the Civil
Code, notice may be “actual” or “constructive.” (§ 18.) Section 1098 does not restrict the
type of notice the recorded document must provide, but simply uses the unqualified term
“notice.” We presume the Legislature was aware of existing related laws and intended to
sustain a consistent body of laws when enacting a statute. (Stone Street Capital, LLC v.
California State Lottery Com. (2008) 165 Cal.App.4th 109, 118.) Because the Legislature
did not limit the type of notice required by section 1098, either actual or constructive notice
was sufficient under the plain language of the statute.
18
Actual notice consists of “express information of a fact,” while constructive notice
“is imputed by law.” (§ 18.) One type of constructive notice is inquiry notice. That is, a
person has constructive notice of a particular fact when the person has actual knowledge of
circumstances sufficient to put a prudent person on inquiry as to the particular fact. (§ 19;
In re Marriage of Cloney (2001) 91 Cal.App.4th 429, 436-437 [“‘A person generally has
“notice” of a particular fact if that person has knowledge of circumstances which, upon
reasonable inquiry, would lead to that particular fact.’”].) Accordingly, when a recorded
document refers to an unrecorded document, the recorded document provides constructive
notice of the contents of the unrecorded document if a prudent inquiry would lead to the
unrecorded document. (Pacific Trust Co. Ttee v. Fidelity Fed. Sav. & Loan Assn. (1986)
184 Cal.App.3d 817, 825; American Medical International, Inc. v. Feller (1976) 59
Cal.App.3d 1008, 1020.) A prudent person reading the lease assignment or resale
assignment, and seeing that a purchaser was promising to pay an assignment fee as set forth
in the unit lease, would inquire into the terms of the assignment fee obligation in the unit
lease. Further, the HOA cannot seriously contend prospective purchasers did not have
access to the unit lease. The parties stipulated at trial that each purchaser of a unit received
a copy of the unit lease. Each purchaser also received the “information sheet” clearly
stating the purchaser would owe a monthly assignment fee in addition to rent. The one-page
information sheet stated the assignment fee would be readjusted on October 1, 2006, and
October 1, 2021, in accordance with the fair market value of the leasehold premises on those
dates, and directed the purchaser to the relevant paragraphs and page numbers of the unit
lease. When the purchasers signed the lease assignment or resale assignment, they
acknowledged they had received and reviewed the unit lease. The undisputed evidence
shows the recorded documents provided constructive notice of the information required by
the substantial compliance exception.
The circumstances here comply with the letter of the law, but they likewise conform
to the spirit of the law. The Legislature enacted sections 1098 and 1098.5 to provide for
“advance notification to buyers and sellers of ‘a new type of transfer fee.’” (Fowler, supra,
220 Cal.App.4th at p. 1158.) One legislative analysis of the bill prior to enactment
19
explained “that ‘[i]n light of the novel transfer fees being created and the general lack of
knowledge regarding those fees’ [citation], the recording requirement was imposed to assure
disclosure of such fees prior to home purchases.” (Ibid.) The evidence we discuss in the
foregoing paragraph shows that, far from being hidden, the assignment fee was clearly
disclosed to purchasers. While the recorded documents provided constructive notice of the
terms of the fee, the purchasers also had actual notice of the assignment fee based on the
package of documents presented to them.
The substantial compliance exception takes the assignment fee outside the definition
of a transfer fee. Hence, there is no bar under sections 1098 and 1098.5 to SCFC collecting
the assignment fee after December 31, 2008. We shall reverse the portion of the judgment
holding the assignment fee may not be assessed or enforced from and after January 1, 2009.
b. The Trial Court Did Not Err in Determining the 4 Percent Formulation Applied*
SCFC also challenges the trial court’s determination that the assignment fee should
be calculated using the 4 percent formulation, contending the 10 percent formulation
represents the correct interpretation of the unit lease. We disagree and affirm the trial court
on this issue.
The court must interpret a contract to give effect to the mutual intent of the parties at
the time they entered into the contract, to the extent their mutual intent is ascertainable.
(§ 1636.) Whenever possible, the court should ascertain the mutual intent of the parties
from the clear and explicit language of the contract alone, so long as the language does not
involve an absurdity and the contract does not involve extrinsic fraud, mistake, or accident.
(§§ 1638, 1639, 1640.) The court may consider parol evidence provisionally to determine
whether the contract is ambiguous. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) If
the court determines the contract is not, in fact, clear and explicit, but is ambiguous, it may
then admit the extrinsic evidence to assist in its ultimate interpretation of the contract.
(Ibid.)
* See footnote, ante, page 1.
20
The threshold determination of ambiguity is a question of law we review de novo.
(Winet v. Price, supra, 4 Cal.App.4th at p. 1166.) We review the trial court’s interpretation
of the contract de novo when the court did not use extrinsic evidence or the extrinsic
evidence is not conflicting. (Ibid.) “When the competent parol evidence is in conflict, and
thus requires resolution of credibility issues, any reasonable construction will be upheld as
long as it is supported by substantial evidence.” (Ibid.)
With regard to the threshold issue, the provision for calculating the assignment fee is
ambiguous because it is reasonably susceptible to more than one meaning. The unit lease
stated: “[T]he monthly assignment fee due and payable hereunder shall be equal to the
amount, if any, by which one-twelfth (1/12) of ten percent (10%) of the fair market value of
the leasehold premises on October 1, 2006 exceeds the monthly rental payable under part
(b) of Paragraph 3 of this Lease.” The HOA argues this provision clearly means the rent
described by paragraph 3.(b) of the unit lease must be deducted, whether or not the unit
owners are actually obligated to pay it anymore. SCFC argues this provision clearly means
nothing must be deducted because there is no rent actually paid under the lease. These
differing interpretations, of course, mark the difference between the 4 percent formulation,
which deducts the rental payment of 6 percent of the value of the land, and the 10 percent
formulation, which deducts nothing from 10 percent of the value of the land. The provision
is reasonably susceptible to both interpretations, as thoroughly demonstrated by the parties’
opposing arguments in their briefing. “[M]onthly rental payable under part (b) of Paragraph
3” could mean the rent capable of being paid according to the formula in paragraph 3.(b), or
it could mean the rent actually being paid.
The strongest evidence of the ambiguity is Lansdale’s and SCFC’s own conduct and
that of their agent. “[A] contract apparently unambiguous on its face may still contain a
latent ambiguity that can only be exposed by extrinsic evidence. [Citations.] In this regard,
predispute, postcontracting conduct is admissible to demonstrate an ambiguity.” (Wolf v.
Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1133.) While defendants
both now advocate for the 10 percent formulation, their past conduct suggested they took no
issue with the 4 percent formulation, even after the HOA acquired the land from the
21
McGrath Trust and it became apparent the unit owners would no longer pay rent. Rufus
Rhoades was Lansdale’s attorney for over 30 years and was an officer and agent of SCFC
until September 2010. Rhoades sent a letter to the HOA’s counsel in 1999 in which
Rhoades acknowledged the HOA and the McGrath Trust were finalizing the transaction. In
the same letter, Rhoades stated: “[W]e are in full agreement with you on the issue of
determining value. As you indicated, the question is how much will the property be worth
in 2006? Once that amount is determined, running a present worth calculation on the four
percent figure is not terribly difficult. Perhaps, with that problem in mind, we should defer
any serious negotiations until we are a good deal closer to that year than we are now.”
(Italics added.) Rhoades’s prelitigation, postcontracting statements in this letter indicate
that he had the 4 percent formulation in mind, representing a deduction for the rent payable
under paragraph 3.(b) despite the HOA’s imminent acquisition of the property. In the
appraisal litigation, Lansdale stipulated to certain facts for that trial, which took place in
2006. The stipulated facts acknowledged the HOA had acquired the land from the McGrath
Trust in 1999 and the unit owners had, in turn, purchased an undivided interest in the land
from the HOA. The stipulation also stated the assignment fee was the amount, if any, by
which 1/12th of 10 percent of the fair market value of the land exceeded the rent payable
under paragraph 3.(b) of the unit lease. In the very next sentence, the stipulation described
the formula for calculating the rent in paragraph 3.(b)—that is, 1/12th of 6 percent of the fair
market value of the land. The clear implication of setting these formulas side by side was
that the 6 percent for the rent was relevant for determining how much would be left over for
the assignment fee—4 percent of the land’s fair market value.
Having determined the assignment fee provision is reasonably susceptible to both
interpretations, we must now decide which one more perfectly represents the mutual intent
of the parties. We are convinced, like the trial court, that the 4 percent formulation is the
correct interpretation for several reasons. A court construes an ambiguity in a contract most
strongly against the party who caused the ambiguity to exist—the drafter of the contract. (§
1654; Taylor v. J. B. Hill Co. (1948) 31 Cal.2d 373, 374.) The courts apply this rule with
particular force when the contract at issue is an adhesion contract. (Badie v. Bank of
22
America (1998) 67 Cal.App.4th 779, 801.) Attorney Hill working on behalf of the limited
partnership drafted the unit lease in its entirety, and in particular, the assignment fee
provision. The counter party to the unit lease was the McGrath Trust. Counsel for the
McGrath Trust accepted Hill’s draft without change, as far as Hill recalled. SCFC, as the
entity that now holds the limited partnership’s interest in the assignment fee, stands in the
shoes of the limited partnership, which was the drafter. The ambiguity should be construed
most strongly against SCFC, especially because the assignment fee provision represented an
adhesion contract. (Goddard v. South Bay Union High School Dist. (1978) 79 Cal.App.3d
98, 105 [“An adhesion contract is a contract in which the party with superior bargaining
power permits the other party to adhere to the contract or reject it, but does not permit an
opportunity to bargain over its terms.”].) The HOA and the unit owners were not parties to
the unit lease and did not have the opportunity to negotiate or provide input on the terms of
the provision. Payment of the assignment fee became the unit owners’ obligation when they
executed the lease assignment with the limited partnership. But even with the lease
assignment, the unit owners did not have the chance to change the terms of the assignment
fee provision already set in stone by the unit lease. They received the unit lease and the
lease assignment as standardized forms in the package of documents given to all purchasers.
In order for a prospective purchaser to buy a unit, they had to simply agree to pay the
assignment fee.
Additionally, substantial extrinsic evidence shows that even the drafter did not
contemplate a situation in which the rent payment would be eliminated, thereby attributing
the entire 10 percent of the land’s fair market value to the assignment fee. Hill testified the
parties to the lease never contemplated that the unit owners would acquire ownership of the
land, and he said the unit lease did not provide for such an occasion. Similarly, Rhoades
testified it “was almost beyond the pale in terms of foreseeability” that the McGrath Trust
would sell its interest in the land to the unit owners. The failure to contemplate the current
circumstances makes sense in looking at the language of provision, which states the
assignment fee is “for and in consideration of” assignment of the leasehold estate. The
contract presumes the existence of a leasehold estate to assign. It seems the drafter, at the
23
time of contracting, thought the unit owners would always pay rent to some party, and the
limited partnership (or its assignees) would merely receive whatever piece of the pie was
left over after the rent was paid. In other words, the limited partnership never contemplated
it would receive the entire 10 percent of the land’s fair market value. If it did not have this
circumstance in mind, it hardly could have communicated this intent to the HOA or the unit
owners at the time the unit owners agreed to the lease assignment. And it is the objective,
mutual intent of the parties on which we must base our interpretation, not the subjective,
unexpressed intent of one party. (§ 1636; Founding Members of the Newport Beach
Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 960.)
Essentially, SCFC wants us to decide not only that it intended the unit owners to pay a
hugely increased fee for the leasehold estate after they acquired the estate through merger,
but also that the unit owners knew of this intent and assented to it. Neither the record nor
the relevant legal principles support this conclusion. In sum, we conclude, like the trial
court, that the 4 percent formulation more perfectly represents the mutual intent of the
parties and should be used to calculate the assignment fee.
2. The HOA’s Cross-appeal*
The HOA advances three main arguments in its cross-appeal. First, it contends the
trial court erred when it found SCFC’s assessment of the assignment fee using the 10
percent formulation did not breach the unit lease or the implied covenant of good faith and
fair dealing. Second, it argues the court erred in awarding prejudgment interest to SCFC.
Last, it contends the court erred when it granted SCFC’s motion for summary adjudication
based on the statute of limitations.
a. The HOA Was Entitled to Judgment Against SCFC on the Breach of Contract
Cause of Action Only
The HOA asserts defendants assessed the assignment fee on or after October 1, 2006,
using the 10 percent formulation, in breach of the unit lease’s assignment fee provision,
which provided for use of the 4 percent formulation. Thus, the HOA contends, both
* See footnote, ante, page 1.
24
defendants breached the unit lease and the covenant of good faith and fair dealing implied in
the unit lease. We agree insofar as SCFC’s billing using the 10 percent formulation
breached the unit lease, but not the implied covenant. Lansdale, however, did not engage in
such conduct, and no basis thus exists for finding he breached the contract.
Preliminarily, we note the decisive facts are not truly in dispute. When this is the
case, we are confronted with a question of law we review de novo. (Ghirardo v. Antonioli
(1994) 8 Cal.4th 791, 799.)
“The essential elements of a breach of contract claim are: ‘(1) the contract, (2)
plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the
resulting damages to plaintiff.’” (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195
Cal.App.4th 1602, 1614.) The third element, defendant’s breach, means the defendant
failed to do something the contract required or did something the contract prohibited.
(CACI No. 303.)
The parties stipulated SCFC began billing the unit owners in December 2008 using
the 10 percent formulation. SCFC argues the assignment fee provision permitted it to bill
the unit owners for the assignment fee, and it therefore did nothing prohibited. But we have
determined the assignment fee provision meant a fee based on the 4 percent formulation. As
a result, the provision prohibited SCFC from overbilling and collecting from the unit owners
using the higher 10 percent formulation. SCFC additionally argues even if its conduct
constituted breach, the unit owners have suffered no damages because the judgment ordered
SCFC to refund the handful of unit owners who overpaid. This argument makes little sense.
The court’s order for SCFC to refund the unit owners is, if anything, an acknowledgement
that some had suffered damage. The HOA instructed the unit owners not to pay SCFC’s bill
in 2008 and instead filed this litigation. Still, SCFC collected from some unit owners under
the 10 percent formulation, and the court ordered it to give refunds totaling $33,816.47 in
the judgment. While this sum may seem paltry relative to the amount the unit owners owed
SCFC in arrearages and interest, it nevertheless constituted damage.
Billing and collecting at a rate other than as allowed under the contract breached the
contract, but the HOA has not shown this conduct separately breached the covenant of good
25
faith and fair dealing. “‘The essence of the good faith covenant is objectively reasonable
conduct.’ [Citation.] ‘[T]he covenant of good faith can be breached for objectively
unreasonable conduct, regardless of the actor’s motive.’” (Badie v. Bank of America, supra,
67 Cal.App.4th at p. 796.) The HOA has not established SCFC’s conduct was objectively
unreasonable. As we discuss above, the assignment fee provision was reasonably
susceptible to either of the parties’ interpretations. In view of the ambiguity, we can hardly
say SCFC acted unreasonably in urging one interpretation or the other. Moreover, the HOA
seeks the same damages under this cause of action and the breach of contract cause of action
(the amount that unit owners overpaid SCFC under the 10 percent formulation). When the
allegations of breach of the implied covenant rely on the same acts and simply seek the
same relief already claimed in a companion breach of contract cause of action, “they may be
disregarded as superfluous as no additional claim is actually stated.” (Careau & Co. v.
Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) Such is the case
here.
SCFC further contends it cannot be liable for breach of contract or the implied
covenant because the litigation privilege applies, consistent with the trial court’s decision.
“The litigation privilege precludes liability arising from a publication or broadcast made in a
judicial proceeding or other official proceeding” and may, under certain circumstances, also
apply to prelitigation communications. (Digerati Holdings, LLC v. Young Money
Entertainment, LLC (2011) 194 Cal.App.4th 873, 888-889; see § 47, subd. (b).) But “the
litigation privilege was founded on defamation actions, and has been applied primarily to
provide absolute immunity from tort liability for communications with ‘“some relation”’ to
judicial proceedings.” (Feldman v. 1100 Park Lane Associates (2008) 160 Cal.App.4th
1467, 1494.) Thus, “the privilege is generally described as one that precludes liability in
tort, not liability for breach of contract.” (Navellier v. Sletten (2003) 106 Cal.App.4th 763,
773.) “[W]hether the litigation privilege applies to an action for breach of contract turns on
whether its application furthers the policies underlying the privilege.” (Wentland v. Wass
(2005) 126 Cal.App.4th 1484, 1492.)
26
“The ‘principal purpose’ of the litigation privilege ‘is to afford litigants and witnesses
[citation] the utmost freedom of access to the courts without fear of being harassed
subsequently by derivative tort action.’ [Citation.] The privilege ‘promotes the
effectiveness of judicial proceedings by encouraging “open channels of communication and
the presentation of evidence” in judicial proceedings.’ [Citation.] The privilege ‘promotes
the effectiveness of judicial proceedings by encouraging attorneys to zealously protect their
clients’ interests.’ [Citation.] ‘Finally, in immunizing participants from liability for torts
arising from communications made during judicial proceedings, the law places upon
litigants the burden of exposing during trial the bias of witnesses and the falsity of evidence,
thereby enhancing the finality of judgments and avoiding an unending roundelay of
litigation, an evil far worse than an occasional unfair result. [Citation.]’ [Citation.] In
summary, the purpose of the litigation privilege is to ensure free access to the courts,
promote complete and truthful testimony, encourage zealous advocacy, give finality to
judgments, and avoid unending litigation.” (Wentland v. Wass, supra, 126 Cal.App.4th at
p. 1492.)
SCFC completely fails to explain how applying the litigation privilege to the breach
of contract claim furthers these policies. In our view, applying the privilege in this case
would not further these policies. Even if SCFC sent its bills after trying to negotiate with
the HOA and in anticipation of litigation, the claim was based not simply on the
communicative act of sending a bill, but more importantly on collecting the overpayments.
Indeed, it is the unauthorized amounts collected that represent the damages sought by the
claim.7 It is one thing to stake a position in litigation or in anticipation of litigation and
articulate that position in an oral or written statement. These types of communicative acts
7 SCFC contends it has not collected anything from the unit owners because the HOA
has collected the money from them and is holding it in reserve. This matters not for our
purposes. The HOA has acted as collection agent for the assignment fee holders before,
from 2000 to 2007, and in the judgment, the court directed it to act as collection agent for
SCFC in the future. The unit owners paid the money to satisfy SCFC’s bill and were thus
deprived of their money, regardless of whether SCFC holds their money or some other
entity holds it for SCFC’s benefit.
27
are classically privileged “publication[s] or broadcast[s]” under the litigation privilege.
(§ 47.) It is another thing altogether to engage in a noncommunicative conduct that violates
the terms of an agreement, such as taking payments to which one is not entitled. “The
litigation privilege was never meant to spin out from judicial action a party’s performance
and course of conduct under a contract.” (Stacy & Witbeck, Inc. v. City and County of San
Francisco (1996) 47 Cal.App.4th 1, 8.) Put another way, the HOA’s breach of contract
claim is based in large part on conduct that does not qualify as a “publication or broadcast”
(§ 47, subd. (b)). Such conduct is not protected by the litigation privilege. The judgment
shall be reversed to the extent it finds in favor of SCFC on the breach of contract cause of
action.
b. The HOA Forfeited Its Prejudgment Interest Argument, But Even If It Had Not,
No Error Occurred
The HOA’s next main argument is that the court erred in awarding SCFC
prejudgment interest. The judgment set forth the amounts the unit owners owed under the 4
percent formulation from October 1, 2006, to December 31, 2008, and stated: “On all
amounts owing, including payments to SCFC and refunds of overpayments from SCFC,
pre-judgment interest shall accrue and be payable at the rate of 7% (seven percent) per
annum.” SCFC argues the HOA has forfeited this argument, and we agree.
Based on the parties’ competing proposed judgments, the court determined they
disagreed on whether prejudgment interest applied, and the court referred the issue to the
referee. In point of fact, it is the referee’s finding at issue here. The referee determined
prejudgment interest applied to the amounts owing to SCFC for the assignment fee. Any
party may file objections to a referee’s report or recommendations, and the trial court shall
review any objections filed. (Code. Civ. Proc., § 643, subd. (c).) The HOA filed objections
to the referee’s findings, but it did not register an objection to the referee’s prejudgment
interest finding. In fact, the HOA expressly stated in its memorandum of points and
authorities supporting the objections: “The Association does not object to the Referee’s
major findings: (1) award of pre-judgment interest for the payments declared owed by the
Homeowners . . . .” (Italics added.) The court went on to adopt the referee’s prejudgment
28
interest finding. “The failure to file a written objection to the contents of the referee’s report
or to properly move to set aside the report results in the waiver of the right to object to the
referee’s findings.” (Martino v. Denevi (1986) 182 Cal.App.3d 553, 557.) The HOA has
therefore forfeited its argument by failing to object to the referee’s finding below.
Even if the HOA had not forfeited the issue, we would hold the award of
prejudgment interest was proper. The referee’s report and recommendation found
prejudgment interest appropriate for two reasons. First, he found: “Prejudgment interest
shall be awarded pursuant to paragraph 4 of the [unit lease], which provides as follows:
‘Any payment of the base assignment fee which shall not be paid when due shall bear
interest at the rate of seven percent (7%) per annum from the date when due and payable by
the terms of this Paragraph 4 until same shall be paid.’” Second, the referee found
notwithstanding that the assignment fee provision expressly authorized prejudgment
interest, prejudgment interest would also be proper under section 3287, subdivisions (a) and
(b). Section 3287 provides a statutory basis for recovering prejudgment interest when a
person “is entitled to recover damages certain, or capable of being made certain by
calculation” and the right to recovery vested upon a particular day from which prejudgment
interest may be calculated. In such cases of “damages certain,” the claimant is entitled to
prejudgment interest as a matter of right. (§ 3287, subd. (a); Leaf v. Phil Rauch, Inc. (1975)
47 Cal.App.3d 371, 376.) The section also gives the court discretion to order prejudgment
interest on an unliquidated contract claim, that is, when the damages were uncertain.
(§ 3287, subd. (b).)
The HOA argues on appeal that SCFC was not entitled to prejudgment interest under
section 3287, either as a matter of right or of discretion. But section 3287 is irrelevant when
a person has a contractual right to prejudgment interest, as the referee found SCFC did here.
(Roodenburg v. Pavestone Co., L.P. (2009) 171 Cal.App.4th 185, 191-192 [“Under the
express terms of the Operating Agreement, Pavestone is obligated to pay interest on any
amount not paid within 30 days of a triggering event. Hence, plaintiffs need not resort to
Civil Code section 3287, subdivision (a), to obtain prejudgment interest. The obligation to
pay interest on any amount ultimately determined to be owed is no less enforceable than the
29
obligation to pay the value of the capital account or the severance payment.”].) The HOA
fails to establish why this primary basis for the referee’s finding was error.
c. The Court Did Not Err in Granting Summary Adjudication Based on the Statute of
Limitations
The HOA lastly argues the trial court erred in granting summary adjudication on
statute of limitations grounds. The court granted summary adjudication as to all claims that
the assignment fee was void from its inception (in the early 1970’s) and all claims running
from the merger of estates in 1999. We are not persuaded the court erred.
We review the trial court’s order granting summary adjudication under the de novo
standard. (Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 504.) A
defendant may meet his or her burden on summary adjudication by establishing an
affirmative defense as a matter of law. (Code Civ. Proc., § 437c, subd. (f)(1); Angelica
Textile Services, Inc. v. Park, supra, at p. 504.)
The causes of action on which the court granted summary adjudication seek a
declaration that the original assignment fee was a forced gift or invalid for lack of
consideration (ninth cause of action), a declaration that the merger of estates extinguished
the obligation to pay the assignment fee (10th cause of action), a declaration that the
assignment fee was an unconscionable surprise when the original unit owners executed their
agreements (14th cause of action), and restitution based on both the forced gift and merger
of estates theories (11th and 12th cause of action). The HOA characterizes the causes of
action at issue as those challenging the validity and enforceability of the original assignment
fee, which existed from the unit lease’s 1973 creation to December 1999, and those
challenging the postmerger assignment fee, which emerged in December 1999 when the unit
owners purchased the land from the McGrath Trust.
The parties agree the four-year statute of limitations for actions upon a contract
applies to these causes of action. (Code Civ. Proc., § 337.) The HOA filed its original
complaint on March 23, 2009. Causes of action accruing before March 23, 2005, were thus
time-barred, absent some reason for tolling the statute of limitations. (Schmidlin v. City of
Palo Alto (2007) 157 Cal.App.4th 728, 747.) The HOA makes three arguments: (1) The
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causes of action did not accrue until December 2008; (2) the discovery rule tolled the statute
of limitations; and (3) the doctrine of equitable estoppel tolled the statute of limitations. All
these arguments lack merit.
i. Accrual
“‘The fundamental basis of declaratory relief is the existence of an actual, present
controversy over a proper subject.’” (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79.)
The HOA contends there was no actual, present controversy over whether the original
assignment fee and postmerger assignment fee were enforceable until SCFC attempted to
“re-write” the assignment fee in December 2008 by billing with the 10 percent formulation.
According to the HOA, no declaratory relief causes of action were ripe for decision until
this so-called rewrite occurred. This is nonsense.
“Generally, a cause of action accrues when, under the substantive law, the wrongful
act is done and liability arises, i.e., when a suit may be brought.” (Menefee v. Ostawari
(1991) 228 Cal.App.3d 239, 245.) In the summary adjudication proceedings, the undisputed
evidence showed that all unit owners were informed of the assignment fee, the original unit
owners all had uniform lease assignments obligating them to pay the assignment fee, and the
original and succeeding unit owners had paid the assignment fee continuously since the
fee’s inception in 1973. If the unit owners had been paying the original assignment fee
since 1973 and were not receiving any consideration in return, as the HOA alleges, the
“wrongful act” was complete back then. There was nothing stopping the HOA from
bringing an action in the 1970’s for a declaration that the assignment fee was a forced gift or
invalid for lack of consideration.8 The controversy was ripe as early as the 1970’s, and the
cause of action accrued then, whether the HOA chose to act on it or not.
Similarly, the controversy as to the merger of estates existed since 1999. It was
undisputed in the summary adjudication proceedings that the HOA purchased the land from
the McGrath Trust in 1999, and following that, the unit owners purchased their interests in
the land from the HOA. This was the circumstance that merged the leasehold estate and the
8 Defendants proffered undisputed evidence that the HOA had existed since 1976.
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landlord estate, thereby extinguishing the leasehold estate. (Strike v. Trans-West Discount
Corp. (1979) 92 Cal.App.3d 735, 742.) If the merger arguably extinguished the obligation
to pay the assignment fee, and the unit owners indisputably were still paying it in 1999 and
after, the wrongful act occurred as early as 1999. Again, there was nothing stopping the
HOA from bringing an action in 1999 or soon thereafter for a declaration that the
assignment fee obligation was extinguished with the merger of estates. Contrary to the
HOA’s contention, these causes of action accrued long before December 2008.
ii. Discovery Rule
“The discovery rule protects those who are ignorant of their cause of action through
no fault of their own. It permits delayed accrual until a plaintiff knew or should have known
of the wrongful conduct at issue.” (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d
805, 832.) The HOA contends it did not know the basis for the invalidity or
unenforceability of the original assignment fee and the postmerger assignment fee until the
appraiser litigation ended in 2008. In particular, it relies on the fact that it was the decision
in the appraisal litigation that held the leasehold estate was merged and extinguished, and
the appraisal litigation did not end until 2008. It suggests it could not have known of the
merger until the court’s decision.
But the discovery rule is concerned with the plaintiff’s knowledge of facts essential
to their cause of action, as opposed to the legal theories underlying the cause of action.
(Gutierrez v. Mofid (1985) 39 Cal.3d 892, 897.) “It is irrelevant that the plaintiff[s] [are]
ignorant of [their] legal remedy or the legal theories underlying [their] cause of action.” (Id.
at p. 898.) The undisputed evidence showed the HOA and the unit owners purchased the
land from the McGrath Trust in 1999. They can hardly claim they did not know of the
purchase in 1999. The undisputed evidence also showed they continued to pay the
assignment after 1999. The legal effect of the purchase—that is, the merger of estates—is
not a fact for purposes of the discovery rule. As a result, even assuming the HOA or the
unit owners were truly ignorant of the legal effect of the purchase, that ignorance cannot toll
the statute of limitations under the rule. As early as 1999, they knew the facts necessary to
bring a cause of action arguing the estates had merged.
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iii. Equitable Estoppel
Equitable estoppel arises when some conduct by the defendants, relied on by the
plaintiffs, induces the belated filing of an action. (Spray, Gould & Bowers v. Associated
Internat. Ins. Co. (1999) 71 Cal.App.4th 1260, 1267-1268.) The essential elements of
equitable estoppel are (1) the defendants knew the operative facts; (2) they intended that the
plaintiffs rely on their conduct, or they acted so that the plaintiffs had the right to believe the
defendants intended to induce reliance; (3) the plaintiffs were ignorant of the true state of
facts; and, (4) the plaintiffs relied on the defendants’ conduct to their injury. (Olofsson v.
Mission Linen Supply (2012) 211 Cal.App.4th 1236, 1245.)
The HOA asserts there was a genuine issue of material fact as to equitable estoppel.
It argues the limited partnership drafted the unit lease to obscure the alleged lack of
consideration for the fee. Moreover, it argues, the defendants obscured the true nature of the
assignment fee in their billings and communications with the unit owners by referring to the
assignment fee as “rent” or grouping it with the rent, not disclosing that the assignment fee
was separate and independent from the rent. The HOA maintains it was only in 2009 and
2010 that Attorney Rhoades (for SCFC) and Reider (a former recipient of assignment fee
payments) exposed the true nature of the assignment fee. They stated in various situations
that the unit owners received nothing of value in exchange for the assignment fee, and the
assignment fee was merely an income stream for the limited partnership and its successors.
The HOA suggests this purported obfuscation by defendants or their agents caused the HOA
to delay bringing suit until it knew the “true” facts.
We disagree that this evidence created a genuine issue of material fact on equitable
estoppel. Specifically, there can be no genuine dispute about the unit owners’ knowledge of
the operative facts. The party asserting equitable estoppel must be “actually and
permissibly” ignorant of the true state of facts. (Simmons v. Ghaderi (2008) 44 Cal.4th 570,
584.) The HOA and unit owners were not ignorant of the true state of facts, according to the
undisputed evidence. As a result, the third element of equitable estoppel cannot be satisfied,
and there can be no estoppel if even one element is lacking. (Ibid.)
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The unit lease clearly identified the assignment fee as a separate and independent
obligation paid to the limited partnership, not the landowner. They were set forth in entirely
different paragraphs, one entitled “Rental” and one entitled “Assignment Fee to Marina
Pacifica.” Further, the assignment fee provision clearly stated the fee was for and in
consideration of the limited partnership’s assignment of the leasehold estate to unit owners,
while the rent was “for the use and enjoyment of the leasehold premises.” Regardless of
what Rhoades or Reider may have said about the assignment fee in 2009 or 2010, and
whether billings grouped the assignment fee with the rent, the unit lease explained the true
state of facts about the assignment fee in 1973. This includes that it was an income stream
for the limited partnership. The unit lease makes no secret of the fact that the monthly
assignment fee payments were going to the limited partnership (in exchange for it assigning
its leasehold estate). Neither the unit lease nor any other document brought to our attention
declares that the limited partnership would use the assignment fee income for anything in
particular. Why it should come as a surprise that the limited partnership simply considered
the payments income is unclear.
From the very first, unit owners were informed of the assignment fee as a separate
obligation paid to the limited partnership in exchange for assignment of the leasehold estate.
They were not, therefore, ignorant of the true state of facts, even if later statements from
defendants or their agents were inconsistent in characterizing the assignment fee as “rent.”
In sum, we are not persuaded the trial court erred in granting summary adjudication
on the ninth, 10th, 11th, 12th, and 14th causes of action.
DISPOSITION
The judgment is affirmed in part and reversed in part. We reverse the judgment to
the extent it holds the assignment fee is an uncollectible transfer fee after December 31,
2008, under sections 1098 and 1098.5. We also reverse the judgment for SCFC, but not
Lansdale, on the breach of contract cause of action, and direct the court to enter judgment
for the HOA against SCFC on this cause of action. The matter is remanded to the trial court
for it to conduct further proceedings as necessary to enter an amended judgment consistent
with this opinion, which judgment may include amended amounts due and owing for the
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assignment fee. In all other respects, the judgment is affirmed.9 Each party is to bear its
own costs on appeal.
FLIER, J.
WE CONCUR:
BIGELOW, P. J.
GRIMES, J.
9 Defendants have filed objections to and a motion to strike materials from the HOA’s
appendix on the ground that these materials are unnecessary for proper consideration of the
issues. Alternatively, defendants have filed a request for judicial notice, to the extent we
deny the motion to strike. Defendants’ motion to strike is denied; their request for judicial
notice is granted.
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