Wednesday, January 8, 2014
HOA Had Standing to Sue Developer on Behalf of Members—C.A.
By a MetNews Staff Writer
The Court of Appeal for this district yesterday ruled that a homeowner’s association has standing to bring causes of actions against developers on its own behalf and as a representative of its constituent homeowners.
Div. Two, in an opinion by Justice Judith Ashmann-Gerst, reinstated an action brought by the Market Lofts Community Association against 9th Street Market Lofts, LLC, the developer of condominiums adjacent to Staples Center.
The appellate panel said the trial judge erred in ruling, on demurrer, that the HOA lacked standing to sue the developers of the lofts and the adjacent parking structure because it was asserting its members’ rights, and not its own, and the members were the ones being subjected to damages in the form of parking fees.
The HOA alleged in its complaint that it had been damaged in excess of $1 million in fees. These damages, it argued, were the result of the developers’ self-dealing in using a parking sub-license agreement to strip the association of many of the rights afforded to it in the original parking license agreement.
That agreement was entered into by the developers in May 2006, and said the agreement was for the benefit of the residential homeowner’s association for its perpetual and exclusive use of more than 300 parking spaces.
The HOA was incorporated on Jan.10, 2007, selling the first condominium loft later that year.
The developers entered into a parking sub-license agreement on Jan. 24, 2007, which the HOA alleged subverted its rights from the original agreement, imposing financial obligations upon the association which were not a part of the original agreement, including monthly fees for each parking space to be increased annually and late fee payments which the HOA would be obligated to pay upon a homeowner’s refusal.
In January 2011, the association became aware of the distinction in terms between the agreements because the previously developer-dominated association became controlled by homeowners.
The association filed suit against the developers in November 2011, and on Aug. 22, 2012 filed a second amended complaint, containing causes of action for declaratory relief, breach of fiduciary duty, breach of license agreement, concealment, unfair business practices, and rescission of the sub-license.
In finding that the association lacked standing Los Angeles Superior Court Judge Richard E. Rico said that “because the individual homeowners here paid the alleged illegal parking fees and [the HOA] only collected them, [HOA] has not shown that it suffered an injury such that it has standing.”
On appeal, the court held that the HOA had standing to bring two causes of action for declaratory relief because it was a directly named beneficiary on both parking license agreements; and, that under Code Civil Procedure §1060, any party with an interest in a contract is allowed to pursue a declaration of rights as to that instrument.
“The trial court adopted the Developers’ argument that the HOA lacks standing…because the HOA is actually seeking a declaration of its members’ rights, rather than its own, since the members pay the parking fees. But this argument overlooks that the HOA is a direct beneficiary of the License Agreement and is a contracting party to the Sub-License. If the Developers’ argument were correct, the HOA would be powerless to seek a determination of its own rights.”
On the breach of contract claims, Ashmann-Gerst said the HOA had standing based on the same reasoning as the declaratory relief claims. She remarked that the HOA was the real party of interest to the licensing agreements, and that “it goes without saying that a party to a contract or one for whom the contract was intended to benefit may bring actions related to such contracts.”
The court also held that standing existed to sue as a representative of the individual homeowners.
Class Action Statute
Under §382, the class action statute also permits representative, nonclass suits, so long as the two requirements for a representative action are satisfied—requirements the HOA met, Ashmann-Gerst said.
“Here, there is plainly an ascertainable class—the homeowners,” she wrote. “There is also a well-defined community of interest concerning the relevant questions of law and fact…[because] any invalidity of the Sub-License would affect the homeowners in the same manner. The homeowners are also the victims of the Developers’ alleged self-dealing.”
The case is Market Lofts Community Association v. 9th Street Market Lofts, LLC. 13 S.O.S. 55.
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