by David Van Atta, Hanna & Van Atta
Associations and particularly boards of directors, should be aware of a recent (2010) California case dealing with the issue of judicial scrutiny (review) of actions taken by association boards, or in other cases, decisions not to act. The case draws a distinction between decisions involving ordinary maintenance of common areas, and decisions not involving maintenance. Board decisions involving ordinary maintenance may (depending on the evidence) be given deference by the court, deference that will not be given to decisions not involving ordinary maintenance.
The 2010 appellate decision in Affan v. Portofino Cove Homeowners Ass’n, 189 Cal.App.4th 930, 117 Cal. Rptr. 3d 481 (4th Dist., 2010) (“Affan”), is an important case as to application of the Lamden “judicial deference” rule. ( Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal. 4th 249, 87 Cal. Rptr. 2d 237, 980 P.2d 940 ( Lamden ) ). (“Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.”)
The owners of a condominium unit brought action against their homeowners association and its managing agent alleging that defendants breached their duty to maintain and repair the common area plumbing, which resulted in a sewage blockage that caused flooding of plaintiffs’ condominium unit, and that defendants failed to remediate the resulting damage and contamination. The trial court found the association liable for breaching an equitable servitude to indemnify plaintiffs for their casualty loss, awarded plaintiffs their remediation and restoration costs as damages, and denied all parties’ requests for attorney fees and costs. Plaintiffs and association appealed.
The Court of Appeal held that (1) the Lamden judicial deference standard applicable to the ordinary maintenance decisions of homeowners associations did not apply to the condominium association’s managing agent, and (2) that the evidence did not establish a maintenance decision by the defendant condominium association, as a predicate for association’s assertion of the Lamden judicial deference standard.
The Lamden judicial deference standard is applicable to the ordinary maintenance decisions of homeowners associations as an affirmative defense, and thus, the defendant has the burden of establishing the requisite elements for applying the Lamden judicial deference standard.
Per the court of appeals, the evidence did not establish a reasonable investigation by defendant condominium association, as a predicate for defendant’s assertion of the Lamden judicial deference standard applicable to the ordinary maintenance decisions of homeowners associations, as an affirmative defense in condominium unit owners’ action alleging that defendant and its managing agent breached their duty to maintain and repair the common area plumbing, which resulted in a sewage blockage that caused flooding of plaintiffs’ condominium unit. The defendant association did not seek to investigate the cause of the repeated backups reported by plaintiffs, which involved the main drain lines for the complex, until after the incident that was the basis for plaintiffs’ action, and instead, before the incident defendant had chosen to continue its “piecemeal” approach to sewage backups, which involved sending plumbers to snake both drains in individual units.
The appellate court in Affan stated: “It is important to note the narrow scope of the Lamden rule. It is a rule of deference to the reasoned decisionmaking of homeowners association boards concerning ordinary maintenance. It does not create a blanket immunity for all the decisions and actions of a homeowners association. The Supreme Court’s precise articulation of the rule makes clear that the rule of deference applies only when a homeowner sues an association over a maintenance decision that meets the enumerated criteria.”
… The judicial deference doctrine does not shield an association from liability for ignoring problems; instead, it protects the Association’s good faith decisions to maintain and repair common areas. In Lamden, the Supreme Court recognized the essence of an association’s duty to maintain and repair is a duty to act based on reasoned decisionmaking. The court observed, “[T]he Declaration [of CC & R’s] here, in assigning the Association a duty to maintain and repair the common areas, does not specify how the Association is to act, just that it should.”( Lamden, supra, 21 Cal .4th at p. 270, 87 Cal. Rptr.2d 237, 980 P.2d 940, original italics.)
Further Review of Affan v. Portofino:
In Affan the Court of Appeals provides some insight as to what a common interest development association must do or consider when seeking application of the Lamden judicial deference rule. As the Court stated, since the rule is to be applied as an affirmative defense to a claim, the association has the burden of establishing the requisite elements for applying the rule. As the appellate court emphasized, the Lamden rule is narrow in its scope. “It is a rule of deference as to the reasoned decisionmaking of homeowners association boards concerning ordinary maintenance. (Second emphasis added.) It does not create a blanket immunity for all the decisions and actions of a homeowners association.”
The association has to prove the fundamental elements of the defense: primarily the lawsuit against the association must concern a maintenance decision made by the Association. In addition, the judicial deference doctrine does not shield an association from liability for ignoring problems; instead, it protects the Association’s good faith decisions to maintain and repair common areas.
The essence of an association’s duty to maintain and repair is a duty to act based on reasoned decisionmaking. If an association, knowing of a maintenance or repair issue elects to do nothing, such decision might deserve judicial deference under extreme and narrow circumstances: For example, as hypothesized by the appellate court: there could be a scenario in which an association faces two extreme choices: doing nothing or adopting a prohibitively expensive course of action. “A court may decide to extend judicial deference to an association’s choice of inaction in that narrow context, if the choice stemmed from deliberations that carefully weighed the alternatives and gave primacy to the best interests of the association and its members. Such inaction would have to be the result of a proper deliberative process.”
As the application of the judicial deference rule requires that the association produce adequate evidence of the determinations as to maintenance made by the association, good and proper record keeping of decisions will be very important. In addition, the use by the board of directors of the association and its managers of qualified experts will also be important to demonstrate that the board used valid reasoned decision making. The discussion in the Affan case demonstrates that years of using the “band-aid” approach will not insulate the association from potential liability.
As stated in Affan, for the Lamden judicial deference rule to apply there needs to be evidence that the Board conducted a “reasonable investigation”. A continuous, unsuccessful piecemeal approach was found to be inadequate.
There also must be evidence the Association acted “in good faith and with regard for the best interests of the community association and its members”. The Association must present evidence the board weighed the costs and benefits of a particular course of action, or considered any other factors in choosing to make its decisions as to how to handle the maintenance problem.
Finally, the Association has to meet a burden of proving its “decision” not to engage in maintenance was an exercise of its “discretion … to select among means for discharging an obligation to maintain and repair” common areas. The record has to contain evidence that the board selected “among means” available to it when responding to a maintenance or repair problem.
In Affan, the court compared the dearth of evidence on the nature of the Association’s decisionmaking as being in stark contrast to the evidence presented in Lamden, where, the homeowners association consulted with contractors and experts for several years in attempting to control a termite problem. In Lamden, the board ordered a significant amount of “remedial and investigative work,” and “seriously considered” various alternative methods and remedies. The board ultimately chose a particular spot treatment over fumigation because of concerns about “possible problems entailed by fumigation, including relocation costs, lost rent, concerns about pets and plants, human health issues and eventual termite reinfestation.”(Ibid.) Thus, in Lamden, ample evidence demonstrated the association board engaged in the sort of reasoned decisionmaking that merits judicial deference.
To invoke Lamden’s judicial deference rule, there must be a record containing evidence showing the Association’s decisions as to maintenance or nonmaintenance of an element of the project was the result of a good faith decision, based upon reasonable investigation.