Friday, February 4, 2005
Order Requiring Homeowners’ Association to Assess Members to Pay Judgment Affirmed on Appeal
By a MetNews Staff Writer
A homeowner’s association may be compelled to charge an emergency assessment to pay a judgment, the Court of Appeal for this district ruled yesterday.
Div. One affirmed Los Angeles Superior Court Judge Richard B. Wolfe’s order appointing a receiver to oversee collection of an emergency assessment from owners of the 46 condominium units at Los Angeles Kingsbury Court in Granada Hills.
The order is a result of a suit by James F. O’Toole Company, Inc., an independent insurance adjusting firm. The association hired O’Toole to deal with its insurer’s adjuster on claims resulting from the Northridge earthquake of 1994, but O’Toole sued for breach of contract, saying the association refused to pay 10 percent of its insurance proceeds as required by its contract.
The case went to judgment in March 2002, and O’Toole was awarded more than $140,000 in damages, plus nearly $60,000 in prejudgment interest. With postjudgment interest, the association now owes more than $380,000.
After O’Toole obtained a writ of execution, the company claimed an exemption under Civil Code Sec. 1366, part of the Davis-Stirling Common Interest Development Act, which provides, among other things, that an association’s income from “regular and special assessments” cannot be attached to pay a judgment to the extent it is needed to pay for essential services.
Wolfe agreed with the association that its regular assessment income was needed for essential services and could not be attached. But he also concluded that payment of the judgment was “an extraordinary expense” within the meaning of Davis-Stirling, and that the association was thus empowered to levy an “emergency” assessment that would be subject to execution under the act.
The judge further ordered the association to hold a meeting to adopt the assessment. After members held the meeting but failed to approve the levy, Wolfe ordered appointment of a receiver.
Justice Miriam Vogel, writing yesterday for the Court of Appeal, said the trial judge was correct.
“Although it is true, as the Association contends, that section 1366 does not expressly obligate it to impose a special emergency assessment to satisfy O’Toole’s civil judgment, the statute most assuredly permits such an assessment in an ‘emergency situation,’ including a ‘situation’ where an order of a court is entered in aid of enforcement of a judgment arising out of an extraordinary and unforeseeable expense necessarily incurred to repair the common areas following the Northridge earthquake....Under the circumstances of this case, section 1366 permits the Association to impose a special emergency assessment to satisfy O’Toole’s judgment.”
Vogel went on to say that nothing in the trial court’s order violates the rights of the homeowners.
“The imposition of a special emergency assessment will not transform the homeowners into judgment debtors or otherwise make them personally liable for the debts of the Association,” the justice explained. “This was and will remain an action against the Association, not an action against the homeowners.”
Attorneys on appeal were Michael S. Rapkin Of Rapkin, Gitlin & Beaumont for the association and John F. Kunath Jr. for O’Toole.
Copyright 2005, Metropolitan News Company