7/29/2019 Kulik Newsletter

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On June 19, 2013, Len Siegel, Tom Ware, and David Bernardonisecured a Court of Appeal decision upholding the trial courts sustaining of ahomeowner associations demurrer to homeowners complaint seeking to holdthe Association liable for damages arising out of engineering errors in thehomeowners architectural application. The victory on appeal is significantinasmuch as many of the issues raised in the complaint were matters of firstimpression which if decided in plaintiffs favor could have increasedexponentially California non-profit homeowners associations exposure inconnection with processing homeowner architectural applications.

This matter presented the issue of whether a non-profit homeownersassociation owed a duty to indemnify members for damages arising from themembers own professional engineers erroneous grading plans submitted tothe associations lay art jury. Currently, there is no legal authority that wouldimpose such a draconian obligation. Nonetheless, plaintiffs sought to create anunprecedented duty that would make their neighbors, who comprise suchassociations, voluntarily serve on their boards and committees, and fund theiroperation, the guarantors of the architectural applicants own professionalengineering reports. Plaintiffs admitted that their lot was constructed sevenfeet above the elevation depicted on the plans approved by the Associationslay architectural art jury as a result of incorrect elevations depicted in theengineering plans. When their neighbors discovered this error, the neighborssuccessfully filed a lawsuit compelling plaintiffs to remove the home, whichinfringed upon their views, and recovered over $200,000 in attorneys fees.Plaintiffs sought to recover the cost to remove the structure and the $200,000paid to the neighbors from the Association based on plaintiffs claim that thelay art jury negligently failed to discover the engineering errors. Unbeknownstto plaintiffs, the art jury reviewed a prior architectural submission by theneighbor which reflected the correct elevation of the neighboring lot. As aresult, the Association approved the plans under the belief that there was a 25foot height differential between the two properties as opposed to the 18 footdifferential depicted in plaintiffs plans. Plaintiffs claimed that the Associationacted unreasonably in doing so, and in failing to disclose to them that theapproval was based on a 25 foot differential not the 18 foot height differentialproposed in plaintiffs plans. We argued that there were no such duties.Plaintiffs, however, tried to convince the Court to extend the duties imposedon Associations to protect the rights of the neighboring properties whenreviewing architectural applications (Cohen v. Kite Hill Cohen v. Kite HillCommunity Association (1983) 142 Cal.App.3d 642) and the obligation toadopt and follow reasonable architectural review procedures (Civil Code 1378) to impose an obligation on the Association to verify the accuracy of theapplicants architectural submissions. The Court of Appeal refused to do so.

Rather, the Court held that neither the CC&Rs, Section 1378, nor

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common law imposed an expressed duty on the Association to verify theaccuracy of plaintiffs erroneous architectural submissions. The Court clarifiedthat Section 1378 imposed an obligation to adopt reasonable procedures andthe Association is required to comply with these procedures. However, Section1378 does not include a duty of reasonableness requiring the Association toengage in conduct not specifically mandated by the CC&Rs. Furthermore, theCourt clarified that the fiduciary duty imposed on associations in Cohen toenforce the governing documents in order to protect the neighboring propertyinterests did not extend to the applying owner, particularly where as here theplaintiffs can point to no provision which was expressly violated by theAssociation. With respect to this latter point, the Court held that theAssociation could not be characterized as a joint tortfeasor with plaintiffs vis--vis plaintiffs neighbors because the Association owed no duty to theneighbor to find an engineering error, notwithstanding Cohen, because theCC&Rs did not contain an express duty on the Association to protect theneighboring owners view rights.

Although the case was not published, the decision is impactful beyondthe parties to the action as the Court refused to create new precedent thatwould have dramatically increased homeowners associations potential liabilityin reviewing architectural plans.