Watts v. Oak Shores Community Assn. CA2/6

Filed 3/2/15 Watts v. Oak Shores Community Assn. CA2/6
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
KEN WATTS et al., 2d Civil No. B240337
(Super. Ct. No. CV060326)
Plaintiffs and Appellants, (San Luis Obispo County)
v.
OAK SHORES COMMUNITY ASSOCIATION,
Defendant and Respondent.
OAK SHORES COMMUNITY ASSOCIATION,
Cross-complainant and Respondent,
v.
KEN WATTS et al.,
Cross-defendants and Appellants.
Two owners of one lot in a common interest development and one of
two owners of another lot brought an action challenging regulations and fees
adopted by the owners association. The association cross-complained against all
owners of both lots for fees and declaratory relief. The association prevailed on the
complaint and cross-complaint. The trial court also awarded the association
statutory attorney fees and costs on the complaint and cross-complaint. The
judgment must be clarified so that the attorney fees awarded on the complaint are
against plaintiffs only, and not against the cross-defendant who was not a plaintiff.
In all other respects, we affirm.
FACTS
Oak Shores is a single-family residential common interest
development. It is governed by the Oak Shores Community Association
(Association). The Association is governed by a board of directors (Board). All
property owners in the development are members of the Association.
The Association's governing documents include its Covenants,
Conditions and Restrictions (CC&Rs) and its bylaws. The Board "may adopt,
amend, or repeal Rules for the use, occupancy and maintenance of the Project; for
the general health, welfare, comfort, and safety of Members; and to interpret and
implement these CC&Rs, and establish penalties for violation of such Rules."
(CC&Rs, Article 6.2.) "In the event the Association undertakes to provide materials
or services that benefit a particular Member, such Member in accepting the
materials or services agrees to reimburse the Association for the costs incurred by
the Association, which shall become a Special Assessment against the Member."
(Id., Article 3.8.)
Oak Shores consists of 851 parcels of land. Six hundred and sixty of
the parcels are developed with single-family homes. Only about 20 percent, 125 to
150, of the homes are occupied by full-time residents. Approximately 66 absentee
homeowners rent their homes to short-term vacation renters.
Ken and Joyce Watts and Lynda Burlison (collectively "Watts") are
absentee owners who rent their homes to short-term vacation renters. Watts filed a
complaint against Oak Shores challenging fees charged and rules and regulations
enacted by the Association. The challenge included: a rule restricting owners from
renting out their homes more than once in any seven-day period; an annual fee of
$325 imposed on owners who rent their homes; a rule limiting the number of
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automobiles, boats and other watercraft that renters are allowed to bring into Oak
Shores; a mandatory garbage collection fee; boat and watercraft fees; building
permit fees; and property transfer fees.
The Association cross-complained against Watts and Robert Burlison,
Jr., for unpaid fees and fines and for injunctive relief to require cross-defendants to
comply with Association rules and regulations. At the time of filing, the Burlisons
owed $2,355.06 in unpaid assessments and the Watts owed $4,888.47. The
Burlisons paid the assessment under protest. At the time of trial, the Watts owed
$10,264.
Short-term Renters
The Association has a rule stating that the minimum rental period is
seven days. The Association's general manager testified that based on his
discussion with Board members, staff and code enforcement officers, as well as his
review of gate and patrol logs, short-term renters cause more problems than owners
or their guests. The problems include parking, lack of awareness of the rules, noise
and use and abuse of the facilities. Expert James Smith testified that, unlike guests
who are typically present with the owners, short-term renters are never present with
the owner. Guests tend to be less destructive and less burdensome. Short-term
renters require greater supervision and increase administrative expenses.
A $325 fee is charged to all owners who rent their homes. A 2007
study calculated each rental cost the Association $898.59 per year.
Watercraft
All short-term renters and guests who bring watercraft into Oak
Shores pay a fee of $25 per day or $125 per week. Short-term renters and guests
are limited to one boat or two personal watercraft. Owners and long-term renters do
not pay such special fees nor are they limited in the number of watercraft they can
bring into Oak Shores.
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Boats have a negative impact on the Association's roads. There are
also costs of maintaining the docks and parking lot used by the renters and
increased costs for code enforcement.
Expert James Smith testified that renters comprise only 8 percent of
the people entering the gate but renters bring in 37 percent of the boats.
Parking Restrictions
Association rules restrict parking in the lower marina lot to owners on
weekends and holidays during the summer months. A lot not much further away is
available to all.
Construction Permits
The Association charges a plan-check fee of $100 and a road impact
fee of $1,600 for new construction. Expert James Smith testified that heavy
equipment used to construct homes places more wear on the roads and results in
greater usage. It is appropriate to consider the need for reserves in determining the
amount of the fee. The Board President testified road resurfacing and repair is the
sole costs basis for the fee.
Trash Collection Fees
The Association contracts with a trash collector. It passes the fees
through pro-rata to all owners of developed lots. The Association does not
distinguish between full-time and part-time residences because it is too difficult to
make that determination. It does not charge the owners of undeveloped lots because
they do not produce trash.
Former Civil Code Section 1366.11
Former section 1366.1 (repealed by Stats. 2012, ch. 180, § 1 and
reinstated with nonsubstantive changes as § 5600, subd. (b)) provided, "An
association shall not impose or collect an assessment or fee that exceeds the amount
necessary to defray the costs for which it is levied."
1
All statutory references are to the Civil Code unless noted otherwise.
4
David Levy and Travis Hickey are certified public accountants. Levy
testified that the expenses generated by renters far exceed the income generated
from renters. He analyzed fees and costs contained in the Association's financial
statements and reserve studies. He concluded the fees charged were reasonable and
complied with the law. Levy also consulted with the Association's former auditors.
Levy and Hickey concluded that the fees were reasonable and did not violate former
section 1366.1. Levy also testified the only comparable association charged fees
that were higher or comparable to fees charged by Oak Shores.
Hickey testified that he is the Association's former auditor. He
studied the fees and consulted with another former auditor. He concluded the fees
were fair, reasonable and in compliance with the law. They do not exceed the costs
for which they are levied. No association conducts a formal study to set fees. Nor
does any association conduct time and motion studies. In fact, time and motion
accounting is not possible.
Homeowners association expert Karen Conlon testified the
Association met the standard of care for giving members notice of rule and fee
changes. Fee increases can be enacted by adopting a budget for the year.
Swimming Pool
The Association paid a pool contractor $35,000 to repair a swimming
pool. The contractor absconded with the money without repairing the pool. A
former director testified that a former Board president wrote a check to the
contractor without Board approval. Expert James Smith testified it is not typical,
nor within the standard of care, for an association to purchase a performance bond.
Release and Unclean Hands
Lynda Burlison filed a previous lawsuit against the Association. Her
complaint included an attack on the Association's CC&Rs, rules and regulations
restricting the use of her property for rental purposes. She settled the suit for
$3,000 and the Association's agreement to accept her suggestions for changes in the
5
rental policies, rules and regulations. As part of the settlement, she executed a
release of all claims "known or unknown" arising out of the complaint.
Ken Watts has never obtained a business license to rent his home, nor
has he paid transient occupancy taxes since at least 2000. He owes at least $5,000
in back taxes. Watts has repeatedly mischaracterized his renters as guests in order
to avoid applicable rental rules and regulations. Portions of his testimony at trial
were "demonstrably false." Throughout his tenure at Oak Shores, he has adopted a
"rancorous, accusatory and obstructionist" style of interaction with Board members
and staff. He has occasionally intimidated staff with bizarre and threatening
behavior.
Judgment
The court found for the Association on the complaint. The court
found Lynda Burlison had no standing because she had previously released her
claims against the Association. The court found that the Watts are denied relief
under the doctrine of unclean hands. The court determined that although all the
inequitable conduct was committed by Ken Watts, Joyce Watts' claims are
inextricably tied to those of her husband. Therefore Joyce Watts is also denied
relief. The court found that the Association's rules and regulations are reasonable
and comply with the Association's governing documents and the law, and that the
fees charged comply with former section 1366.1.
The court also found for the Association on the cross-complaint. It
granted the Association an injunction ordering the cross-defendants to abide by the
rules and regulations. It also granted the Association a money judgment against
Ken and Joyce Watts in the amount of $10,264 plus interest for unpaid assessments.
The Association moved for an award of attorney fees pursuant to
former section 1354, subdivision (c). "In an action to enforce the governing
documents, the prevailing party shall be awarded reasonable attorney's fees and
costs." (Ibid., repealed by Stats 2012, ch. 180, § 1 and reenacted without
substantive changes as § 5975, subd. (c).). The trial court found the Association
6
was the prevailing party in its efforts to enforce the governing documents both as to
the complaint and cross-complaint. The court awarded $1,180,646.50 for defending
the complaint and $27,730 on the cross-complaint.
DISCUSSION
I.
On appeal, Watts does not challenge the trial court's findings that
Lynda Burlison must be denied relief because she had previously released the
Association from liability and that Ken and Joyce Watts are denied relief under the
doctrine of unclean hands. Their failure to raise the issues in their opening brief
waives the issues on appeal. (Tisher v. California Horse Racing Bd. (1991) 231
Cal. App. 3d 349, 361.) Because Lynda Burlison and the Watts are the only
plaintiffs, we must affirm the trial court's judgment denying any relief under
their complaint. We discuss the issues raised on appeal only as they relate to the
cross-complaint and the award of attorney fees.
II.
Watts contends that the judgment is based on incorrect legal grounds.
Watts claims that the rule applying judicial deference to association
decisions applies only to ordinary maintenance decisions. But in Lamden v. La
Jolla Shores Clubdominium Homeowners Association (1999) 21 Cal. 4th 249, our
Supreme Court stated, "'Generally, courts will uphold decisions made by the
governing board of an owners association so long as they represent good faith
efforts to further the purposes of the common interest development, are consistent
with the development's governing documents, and comply with the public policy.'"
(Id., at p. 265, quoting Nahrstadt v. Lakeside Village Condominium Association,
Inc. (1994) 8 Cal. 4th 361, 74.) It is true the facts in Lamden involve the association
board's decision to treat termites locally rather than fumigate. But nothing in
Lamden limits judicial deference to maintenance decisions. Common interest
developments are best operated by the board of directors, not the courts.
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Watts' reliance on Affan v. Portofino Cove Homeowners Association
(2010) 189 Cal. App. 4th 930, is misplaced. There, an owner sued the association for
failing to properly maintain the sewer lines. In applying judicial deference, the
court stated that the Lamden rule gives "deference to the reasoned decisionmaking
of homeowners association boards concerning ordinary maintenance." (Id., at p.
940.) But there is no reason to read Lamden so narrowly. In fact, courts have given
deference to board decisions that do not concern ordinary maintenance. Thus, for
example, in Dolan-King v. Rancho Sante Fe Association (2000) 81 Cal. App. 4th
965, 979, the court gave deference to an association board's decision denying on
aesthetic grounds an owner's application for a room addition.
Article 3.8 of the CC&Rs gives the Board broad powers to adopt rules
for Oak Shores. Nothing in the article or elsewhere prohibits the Board from
adopting rules governing short-term rentals, including fees to help defray the costs
such rentals impose on all owners. The Board may reasonably decide that all
owners should not be required to subsidize Watts' vacation rental business.
That short-term renters cost the Association more than long-term
renters or permanent residents is not only supported by the evidence but experience
and common sense places the matter beyond debate. Short-term renters use the
common facilities more intensely; they take more staff time in giving directions and
information and enforcing the rules; and they are less careful in using the common
facilities because they are not concerned with the long-term consequences of abuse.
In arguing the cost of short-term rentals must be borne by all
members, Watts cites California Code of Regulations, title 10, section 2792.16(a).
That regulation provides, "Regular assessments to defray expenses attributable to
the ownership, operation and furnishing of common interests by the Association
shall ordinarily be levied against each owner according to the ratio of the number of
subdivision interests owned by the owner assessed to the total number of interests
subject to assessments." Watts' reliance on the regulation is misplaced for a number
of reasons. First, it applies to subdivision developers. Watts cites no authority that
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it also applies to continuing operations of a common interest development. Second,
the regulation is qualified by the word "ordinarily." (Ibid.) It clearly does not state
an immutable rule. Third, the regulation applies to "[r]egular assessments." (Ibid.)
Watts cites no authority that it applies to the type of use fees at issue here.
Watts' reliance on the Association's Articles of Incorporation, Article
II, paragraph (d), is also misplaced. The paragraph under the heading "General
Purposes" states in part: "To fix and establish the fees, dues and assessments that
each member of this corporation shall pay to this corporation for the purpose of
providing funds to carry out the community purposes and objects of this
corporation, and to receive and collect such fees, dues and assessments[.]" Nothing
in the paragraph provides that each member shall pay the same amount regardless
of his or her activities on the premises. It does, however, confirm the power of the
Association to impose fees as well as assessments. Thus it confirms the power of
the Association to impose the type of fees at issue here.
Watts' reliance on Laguna Royale Owners Association v. Darger
(1981) 119 Cal. App. 3d 670, 685 ("Laguna Royale"), is misplaced. There, a
common interest development was built on a 99-year ground lease. Defendants
purchased a unit in the development. Later, the defendant transferred undivided
interests to three other families. No more than one family would use the unit at a
time and each of the four families agreed to 13-week periods of exclusive use. The
ground lease contained a provision prohibiting transfer of the unit without the
development association's approval. The association refused to approve the transfer
on the ground, among others, that use by the four families would place an undue
burden on the other owners in their use and enjoyment of their units so as to be
inconsistent with their quiet enjoyment and maintenance of security. The trial court
invalidated the assignments. The Court of Appeal reversed.
In reversing, the Court of Appeal affirmed that the association had the
authority to enact reasonable regulations on the use and alienation of the
condominiums. (Laguna Royale, supra, 119 Cal.App.3d at p. 682.) The court also
9
determined that the reason given for refusing consent to the transfer is rationally
related to the proper operation of the property and purposes of the association. (Id.,
at p. 686.) The court concluded, however, there was no evidence that consecutive
use of the unit by the four families one at a time would be so disruptive as to
interfere substantially with the other owners' use and enjoyment or the maintenance
of security. (Id., at p. 687.) The court pointed out that the association's bylaws
allowed leasing of a unit for 90 days or more, a use more intense than the 13 weeks
excusive use agreed to by each of the four families. (Ibid.)
If anything, Laguna Royale is favorable to the Association. It
confirms the authority of the Association to enact reasonable regulations governing
transfers so as to preserve the owner's quiet enjoyment of the premises and the
maintenance of security. There was simply no evidence in Laguna Royale that four,
13-week periods of occupation by a single family would have a significant impact
on the enjoyment of the premises by other owners or on security. Here there is
more than ample evidence that short-term rentals have such significant impacts.
III.
Watts contends the judgment is not based on the evidence.
Watts' statement of facts cites the evidence in a light most favorable to
himself. But that is not how we view the evidence.
In viewing the evidence, we look only to the evidence supporting the
prevailing party. (GHK Associates v. Mayer Group, Inc. (1990) 224 Cal. App. 3d
856, 872.) We discard evidence unfavorable to the prevailing party as not having
sufficient verity to be accepted by the trier of fact. (Ibid.) Where the trial court or
jury has drawn reasonable inferences from the evidence, we have no power to draw
different inferences, even though different inferences may also be reasonable. (9
Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 376, pp. 434-435.) The trier of fact
is not required to believe even uncontradicted testimony. (Sprague v. Equifax, Inc.
(1985) 166 Cal. App. 3d 1012, 1028.) Watts' failure to state the evidence favorable
10
to the judgment waives the contention on appeal. (Foreman & Clark Corp. v.
Fallon (1971) 3 Cal. 3d 875, 881.)
In any event, Watts' only argument is that the uncontroverted
evidence proved the Association's true purpose in enacting its rules and regulations
is to keep Oak Shores private by making it expensive to rent. But Watts confuses
uncontroverted evidence with credible evidence. The trier of fact may reject even
uncontradicted evidence as lacking sufficient verity. (Sprague v. Equifax, supra,
166 Cal.App.3d at p. 1028.)
IV.
Watts contends the trial court erred in adopting the proportionality test
in determining the reasonableness of the fees.
Former section 1366.1 prohibits an association from imposing or
collecting "an assessment or fee that exceeds the amount necessary to defray the
costs for which it is levied."
At trial, Watts argued the Association was required to conduct time
and motion studies to determine the correct amount of the fees. The trial court
rejected Watts' argument. In its statement of decision the court stated the issue is
whether "rough proportionality" between the fees and costs is sufficient to comply
with the statute. The court found that the evidence established a "reasonably close"
relationship between each contested fee and the cost it is intended to offset. The
court concluded that relationship satisfied former section 1366.1.
Nothing in the language of former section 1366.1 requires the exact
correlation between the fee assessed and the costs for which it is levied that Watts
appears to demand. In some instances, such an exact correlation may be impossible
to obtain. In other instances, the costs of studies necessary to obtain an exact study
may be prohibitive, requiring the Association to add the costs to the fees. The
"golden rule" for statutory interpretation is that where several alternative
interpretations exist, the one that appears the most reasonable prevails. (Stewart v.
Bd. of Medical Quality Assurance (1978) 80 Cal. App. 3d 171, 179.) The most
11
reasonable interpretation of former section 1366.1 is that it requires nothing more
than a reasonable good faith estimate of the amount of the fee necessary to defray
the cost for which it is levied. Whether the court uses the term "roughly
proportional" or "reasonably close" the test has been met here.
In Foothills Townhome Association v. Christiansen (1998) 65
Cal. App. 4th 688, a homeowners association imposed a special assessment of $1,300
against each owner. The assessment was to replenish the association's reserve fund,
which had been depleted paying for storm damage. The reserve fund could be used
for purposes other than storm damage. An owner challenged the assessment as
violating former section 1366.1. The court upheld the amount of the assessment on
the ground that there was no showing that the usual reserve balance was excessive
or that the amount of the assessment pushed the fund above its usual balance.
(Foothills, supra, at p. 694.) The court did not require a precise correlation between
the amount of the assessment and the cost for which it was levied.
Watts argues that the Association should be bound by its admissions
made during discovery that no studies to determine costs associated with the fees
were conducted. The discovery to which Watts refers were interrogatories
answered in February 2007. Trial began in April 2011. At trial, the Association
produced evidence of studies that supported the fees. Watts points to no place in
the record where the Association's witnesses were asked to explain the apparent
discrepancy between the interrogatory responses and their testimony. Nor does
Watts cite any authority in support of his argument requiring the trial court to reject
the Association's evidence at trial. Watts has failed to carry his burden of
showing error on appeal. (See In re Marriage of Ananeh-Firempong (1990) 219
Cal. App. 3d 272, 278 [judgment presumed correct, error must be affirmatively
shown].)
Watts claims that the garbage fees were initiated January 1, 2001,
without ever being adopted by the Association as required by former section
1357.100, subdivision (a) (repealed by Stats. 2012, ch. 180, § 1, now § 4340). But
12
that statute simply defines "'operating rule.'" (Ibid.) It does not set forth any
particular procedure for adopting any rule. Moreover, it defines operating rule as a
"regulation." (Ibid.) The garbage fee is not a regulation. It is simply a cost the
Association passes through to the owners of the developed lots.
Watts claims the Board adopted or increased fees and fines by simply
including them in the budget. But he cites no authority prohibiting the Board from
adopting or increasing fees and fines in that manner.
In any event, Watts' entire contention is based on a view of the
evidence most favorable to himself. Watts fails to cite the evidence most favorable
to the judgment. That evidence includes the testimony of Karen Conlon, an expert
on homeowners associations. She testified the Association met the standard of care
on notice of rules and fee charges. Board members also testified that Board
meetings agenda and minutes were posted on the Association's website. Watts has
waived the contention on appeal. (Foreman & Clark Corp. v. Fallon, supra, 3
Cal.3d at p. 881.)
V.
Watts contends the trial court abused its discretion in denying its
motions in limine.
(a)
Watts argues the trial court should not have permitted the testimony
of six "persons most qualified" ("PMQs") who were not designated during
discovery.
During discovery, the Association designated Robert Lever as its
PMQ for purposes of a deposition. Bandy Smith, an Association manager verified
responses to written discovery. Watts made a motion in limine to exclude Board
member witnesses who were not designated as a PMQ.
In opposing the motion, the Association pointed out that the discovery
designating its PMQ was made years prior to the trial. Lever is no longer on the
Board and is not an agent or employee of the Association. In written discovery
13
responses, the Association identified others with knowledge of the issues. It even
provided Watts with a historical list of Board members, officers and employees.
The trial court denied the motion.
Watts cites no authority to support its argument that the trial court
abused its discretion. Moreover, preclusion discovery sanctions are generally not
imposed unless a party fails to obey a discovery order or engages in repeated and
willful refusal to permit discovery. (See Maldonado v. Superior Court (2002) 94
Cal. App. 4th 1390, 1398-1399.) Watts points to none of those factors here.
(b)
Watts argues the trial court abused its discretion in granting the
Association's motion in limine. The Association moved to exclude evidence that it
breached its fiduciary duty by incurring $300,000 in attorney fees to pursue its
cross-complaint. The cross-complaint was to recover the fees owing. Watts points
out that the amount was within the jurisdiction of the small claims court.
Watts does not contest that the Association has the right and duty to
collect all properly imposed fees and assessments. He cites no authority prohibiting
the Association from retaining an attorney to enforce its rights. This case does not
involve a simple question whether Watts had paid the fees. Instead, the case
involves the more complex question whether the Association has the power to
impose the fees. If enforcing the Association's rights to the fees cost $300,000, it is
not because the Association breached a fiduciary duty; it is because Watts resisted
paying lawfully imposed fees. Watts simply had no viable claim for a breach of
fiduciary duty.
VI.
Watts contends the award of fees and costs was excessive. The
court awarded the Association $1,180,646.50 on the complaint and $27,730 on the
cross-complaint.
Former section 1354, subdivision (c) provided, "In an action to
enforce the governing documents, the prevailing party shall be awarded reasonable
14
attorney fees and costs." Watts argues the action did not involve a challenge to the
validity of the governing documents. It may be true that Watts did not challenge the
validity of the governing documents. But the statute applies to actions to "enforce
the governing documents." (Ibid.) Watts' action challenged the right of the
Association to enforce the governing documents by enacting and attempting to
collect fees and assessments pursuant to those documents. The action clearly comes
within that statute. Thus an award of fees was appropriate.
Watts makes no challenge to any specific item of attorney fees and
costs. Instead, he states that the award was punitive. He argues the court rewarded
the Association for vigorously litigating the case in order to make a statement and
precedence for future litigation.
Watts ignores that he initiated the action and vigorously litigated in
order to make a statement and create precedence Watts could have avoided all
attorney fees and costs simply by declining to bring the instant unmeritorious
action and by paying the Association the few thousand dollars it was properly
demanding.
Watts claims the trial court found the cross-complaint should not
have been brought. The trial court only stated it would have made "better sense"
to obtain a tolling agreement, or file and stay the collection matter. But the
Association had every right to bring the cross-complaint on which it unequivocally
prevailed. The court did find the $250,000 the Association was requesting on the
cross-complaint was excessive and awarded only $27,730. Robert C. Burlison, Jr.,
argues he was not a party to the complaint and thus fees on the complaint cannot be
awarded against him. The trial court's ruling states that fees are awarded to Oak
Shores. The trial court's ruling also states, "No request has been made to apportion
this award." Nevertheless, the Association does not contest Burlison's point on
appeal.
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The attorney fee portion of the judgment against Robert C. Burlison,
Jr., is only on the cross-complaint. In all other respects, the judgment is affirmed.
Costs on appeal are awarded to respondent and against all appellants.
NOT TO BE PUBLISHED.
GILBERT, P. J.
We concur:
YEGAN, J.
PERREN, J.
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Charles S. Crandall, Judge
Superior Court County of San Luis Obispo
______________________________
Burlison Law Group, Robert C. Burlison, Jr., for Plaintiffs, Cross-
defendants and appellants Ken Watts, Joyce Watts and Lynda Burlison.
Burlison Law Group, Robert C. Burlison, Jr., for Cross-defendant
Robert C. Burlison, Jr.
Lewis Brisbois Bisgaard & Smith, Roy G. Weatherup, Michael B.
Wilk, Caroline E. Chan, Ryan D. Harvey; Adams Kessler, Adrian J. Adams, Gary
S. Kessler, Paul S. Ablon, Aide C. Ontiveros for Defendant, Cross-complainant and
Respondent.