KAYE v. MOUNT LA JOLLA HOMEOWNERS ASSN
(1988) 204 Cal.App.3d 1476
[204 Cal.App.3d 1477]
COUNSEL
Michael Kaye for Plaintiffs and Appellants.
Christopher Welsh, Marilyn Moriarty, Martha L. McGill and Coppo & Cosgrove for Defendants and Respondents.
OPINION
WIENER, Acting P. J.
Plaintiffs Samuel and Aline Kaye appeal a judgment of dismissal based on
the five-year rule of Code of Civil Procedure section 583.310 and
separately an order denying their motion to certify a defendant class of
members of a condominium homeowners association. Consistent with the
Legislature's directive that we liberally interpret exceptions to the
five-year statute, we reverse the judgment of dismissal on the ground it
was "impracticable" within the meaning of section 583.340 for the Kayes
to proceed to trial while a writ petition which successfully challenged
the trial court's summary adjudication of issues was pending in this
court. At the same time, we reject several other arguments raised by the
Kayes on issues made appealable by the dismissal judgment.
On the class certification appeal, the Kayes have conceded that joinder
of individual members of the defendant Mount La Jolla Homeowners
Association is necessary only because of the potential they might
recover a judgment [204 Cal.App.3d 1480] including punitive
damages which could not be satisfied by resort to the assets of the
association itself. Because we believe there is no possibility of such
an occurrence, we have concluded the trial court did not err in refusing
to certify a defendant class.
Factual and Procedural Background
Factual Allegations
Plaintiffs Samuel and Aline Kaye own a condominium unit in the Mount La
Jolla condominium development. Mount La Jolla consists of 234 contiguous
condominium units. According to the covenants, conditions and
restrictions (CC&Rs) which apply to the development, the individual
unit owners have exclusive ownership of a "dwelling space" which is
bounded by the "interior surfaces of the perimeter walls, floors,
ceilings, windows and doors ..." of their unit. The CC&Rs
specifically provide, "The following are not part of the units: bearing
walls, columns, floors, roofs, foundations, central heating and other
central services, pipes, ducts, flues, chutes, conduits, wires and other
utility installations, wherever located, except their outlets when
located within the units." With the exception of each unit's "dwelling
space," each homeowner owns an undivided common fractional interest in
the Mount La Jolla complex, which means virtually all of the physical
substance of the development consists of jointly owned "common areas."
To maintain and repair these common areas, the CC&Rs created the
Mount La Jolla Homeowners Association (the Association). The Association
is run by a board of governors elected by the homeowners. Individual
unit owners have no authority to arrange for or make repairs to the
common areas. This function is exclusively reserved to the board of
governors.
In 1977 the Kayes first noticed a crack in the concrete slab floor of
the garage of their unit. When minor repair measures failed and the
crack reappeared, the Kayes reported the problem to the board of
governors. The board hired an engineering firm to inspect the Kayes'
unit and four other condominiums which had experienced a similar
problem. When the engineering report recommended soil testing to
discover the exact cause of the subsidence problem, the board rejected
the recommendation, dismissed the firm and hired a new engineer.
Over the next four years, the board together with its new engineer
adopted tactics of inordinate delay, deception and intransigence with
respect to the subsidence problem in an effort to postpone or avoid
paying the substantial sums necessary to make adequate repairs. In early
1980, the Kayes [204 Cal.App.3d 1481] offered to pay the costs
of soil testing. Not only did the board refuse the offer, but it
expressly forbade the Kayes from contracting for a soil study on their
own.
In the meantime, the condition of the Kayes' unit continued to
deteriorate. Cracks appeared in the walls and floor slabs. The walls
buckled and bowed to the point that doors would no longer open and
close. One end of the unit had sunk nearly three inches lower than the
other end.
The soils study recommended in the first engineering report was finally
performed under board authorization in the summer of 1981. The study
revealed the condominium had been constructed on deep earthfill and that
soil preparation defects were the likely cause of the subsidence
problem. Even so, the Association proved unresponsive and this lawsuit
was filed in November 1981 against the Association and 14 individuals
who served on the board of governors during the relevant period (the
director defendants). As late as March 1982 the Association's
Construction Committee rejected its own engineers' recommendations
regarding repairs as "an unnecessary and extreme measure of correction."
Nonetheless, by the end of 1983, the Association had expended about
$88,000 to make repairs to the Kayes' unit and there is evidence those
repairs may be inadequate. The Kayes now seek recovery for diminution in
the market value of their unit, lost rents and profits, emotional
distress, miscellaneous expenses and punitive damages.
Procedural History
In their original complaint, the Kayes sought to allege, among others, a
cause of action against the Association and its constituent homeowners fn. 1
for failing to provide lateral and subjacent support for their
condominium unit. The Association successfully demurred to that cause of
action in May 1982.
A trial date on the remaining causes of action was set for November 6,
1986, about two weeks before the five-year anniversary of the filing of
the Kayes' complaint. On August 13, 1986, the Association and the 14
defendant directors moved for summary adjudication of issues seeking to
eliminate the Kayes' claims for punitive damages. The original hearing
date of September 23 was continued twice until October 17, on both
occasions apparently at the Kayes' request. At the hearing, defendants'
motion was taken under submission. Further argument was heard on October
24 at which time the court granted the defendants' motion, eliminating
all punitive damage claims. [204 Cal.App.3d 1482]
On November 6, the Kayes told the trial court they had elected not to go
to trial on that date but instead were seeking a stay and extraordinary
writ review of the summary adjudication order in this court. In
response, the trial judge took the case off calendar. The Kayes filed
their writ petition later that same day. No stay issued. On Friday
November 21, the last business day before the five-year anniversary,
this court in a nine-page opinion issued a peremptory writ of mandate
reversing the summary adjudication of issues as to the Association and
five of the defendant directors. Mindful of the approaching five-year
deadline, our opinion provided that it would be "final immediately,
because the trial date must be set by November 24, 1986, to avoid the
running of the five-year statute (Code Civ. Proc., § 583.310)."
On November 25, 1986, the Kayes filed a motion in the superior court to
specially set the case for trial. In the papers supporting that motion,
the Kayes argued that the five-year statute had been tolled on a variety
of theories. Defendants responded that the five-year statute had run
and no exceptions were applicable. The trial court agreed with
defendants and dismissed the action.
Five-Year Statute
[1] Code of Civil Procedure section 583.310 fn. 2
establishes the general rule that a civil action must be brought to
trial within five years or it will be dismissed. (See also § 583.360.)
The rule is subject to several specific statutory exceptions including
an exclusion from the five-year period of any time during which
"[b]ringing the action to trial, ... was impossible, impracticable, or
futile." (§ 583.340, subd. (c); see generally Christin v. Superior Court
(1937) 9 Cal.2d 526,
533 [71 P.2d 205, 112 A.L.R. 1153].) The Law Revision Commission
Comment to this section indicates the exceptions "must be interpreted
liberally, consistent with the policy favoring trial on the merits." (16
West's Ann. Code Civ. Proc. (1988 pocket supp.) § 583.340, p. 47.) In
determining whether it was "impossible, impracticable, or futile" to
bring the action to trial for some portion of the five-year period, the
court must consider "all the circumstances in the individual case,
including the acts and conduct of the parties and the nature of the
proceedings themselves. [Citations.] The critical factor in applying
these exceptions to a given factual situation is whether the plaintiff
exercised reasonable diligence in prosecuting his or her case. [¶] ...
Neither the courts nor litigants have any legitimate interest in
preventing a resolution of the [204 Cal.App.3d 1483] lawsuit on
the merits if, through plaintiff's exercise of reasonable diligence, the
goals of [the five-year statute] have been met." (Moran v. Superior
Court (1983) 35 Cal.3d 229,
238 [197 Cal.Rptr. 546, 673 P.2d 216].) The question before us is
whether it was "impracticable" within the meaning of section 583.340 for
the Kayes to bring their action to trial during the pendency of the
writ proceeding challenging the summary elimination of their punitive
damage claims.
[2] In Christin v. Superior Court, supra, 9 Cal.2d 526,
the California Supreme Court established the rule that an interlocutory
appeal may toll the running of the five-year statute, even if the trial
court technically retains jurisdiction to try the matter, if it would
be impracticable to proceed to trial pending resolution of the appeal.
Earlier in the Christin case, the plaintiff had successfully appealed
the trial court's granting of a motion for change of venue. More than
five years had passed since the filing of the complaint when the Supreme
Court was asked to review the propriety of the trial court's denial of
defendant's motion to dismiss. Upholding the trial court, the Supreme
Court held the five-year period was tolled for the time during which the
venue appeal had been pending. [3a] "The purpose of the statute is
plain: to prevent avoidable delay for too long a period. It is not
designed arbitrarily to close the proceeding at all events in five
years, ...." (9 Cal.2d at p. 532; see also Rose v. Knapp (1951) 38 Cal.2d 114,
117 [237 P.2d 981].) Responding to the defendant's argument that
plaintiff could have proceeded to trial in the new venue location while
concurrently prosecuting his appeal, the Supreme Court stated, "Modern
cases recognize as a defense not only objective impossibility in the
true sense, but also impracticability due to excessive and unreasonable
difficulty or expense. [Citations.] [¶] Counsel for plaintiff, in
prosecuting his appeal from the void order, and in taking no steps
toward a futile trial ... acted reasonably and with due regard to the
interests of his client and the courts." (9 Cal.2d at p. 533.) fn. 3
Later cases have expanded on the "impracticability" exception in
different contexts. In General Motors Corp. v. Superior Court, supra, 65 Cal.2d 88,
plaintiffs sued the defendant for personal injuries sustained in an
automobile accident. One of the plaintiffs died three years later and
her heirs filed a wrongful death action against the defendant alleging
her death was the result of her earlier injuries. The heirs then
successfully sought consolidation of the two lawsuits. Preparation for
trial of the consolidated cases continued for two more years until the
defendant moved to dismiss [204 Cal.App.3d 1484] the personal
injury action because it had not been brought to trial within five
years. The Supreme Court rejected defendant's argument, holding it was
"impracticable" for the plaintiff to have proceeded to trial on the
personal injury action before the wrongful death action was ready to be
tried. The court noted that the evidence in the two cases would be
substantially similar if not identical and the value to be served by a
trial within five years of the personal injury action did not exceed the
cost of two duplicative trials: "Th[e] same issue is central to both
the personal injury action and the wrongful death action, and to insist
that the relevant evidence be duplicated at two separate trials would
exacerbate the already substantial burdens of the litigation." (Id. at
p. 96.)
Similar reasoning was applied in Brunzell Constr. Co. v. Wagner (1970) 2 Cal.3d 545
[86 Cal.Rptr. 297, 468 P.2d 553], in which the plaintiff sued two
severable groups of defendants in a contract dispute. Procedural
disputes with one group of defendants including three interlocutory
appeals consumed the better part of five years and plaintiff did not
seek to proceed to trial separately against the second group of
defendants. The Supreme Court reversed the trial court's judgment of
dismissal as to the second group of defendants, holding that "the bare
fact of severability does not preclude the application of the
'impracticable and futile' exceptions as that doctrine has been
consistently interpreted by this court." (Id. at p. 548.) "In many
situations in which it is impossible or impracticable to proceed against
one codefendant it may be impracticable, in terms of the burden both to
the parties and to judicial administrations as a whole, to proceed
against other defendants in a separate suit. To require a plaintiff to
sever causes of action against multiple defendants whenever it becomes
impossible or impracticable to proceed against one defendant within the
five-year period would be to require unproductive duplication of effort,
compel the incurrence of excessive expense, and generally undermine all
the policies served by modern theories of consolidation in a
substantial number of cases." (Id. at pp. 553-554.) In determining
whether the impracticability exception applied in such circumstances,
the Supreme Court directed trial courts to consider "a great variety of
factors, including, among others, the expense, complexity, and quantity
of the evidentiary duplication that severance would entail, the
potential problems that inconsistent judicial determinations would
produce, and the degree of hardship or prejudice to the defendants
occasioned by the delay." (Id. at p. 554, fns. omitted.)
The rationale of General Motors and Brunzell was applied to further
extend the impracticability exception in Stella v. Great Western Sav.
& Loan Assn. (1970) 13 Cal.App.3d 732
[91 Cal.Rptr. 771]. There, the Court of Appeal held plaintiffs were
excused from bringing their action to trial within five years while they
awaited the resolution of the appeal in a related case [204 Cal.App.3d 1485]
which eventually settled a significant common legal issue. The court
concluded, "Plaintiffs' forbearance in awaiting the outcome of the
[related] appeal in our opinion well served the interests of judicial
economy." (Id. at p. 738.)
The principles outlined above support the conclusion that the Kayes
acted reasonably in deferring trial of the case until their writ
petition on the punitive damage issue had been resolved and it was
therefore "impracticable" within the liberal meaning of section 583.340
to bring the matter to trial within the five-year period. While section
598 would appear to allow for bifurcation of a punitive damages issue,
which may be the functional equivalent in this case of a severance of
consolidated cases in General Motors or a severance of parties in
Brunzell, those cases make clear that a court must consider practical
issues beyond the technical ability to conduct a separate trial. The
record here suggests a separate trial of the punitive damage issue would
require presentation of evidence already introduced in an earlier trial
devoted to compensatory damages. This conclusion is supported by the
very reason for our issuing the peremptory writ in the first place: our
implied but necessary determination that the Kayes' remedy by way of
appeal was inadequate. A separate trial on the punitive damage issue
would have been unnecessarily duplicative and wasteful.
Turning to the balancing of the other factors identified in Brunzell,
inconsistent judicial determinations quite clearly is not a problem
where a severance of parties is not involved. On the question of
prejudice as a result of the delay, defendants here have alleged no
prejudice nor can we independently discern any from the record.
Defendants suggest that proceeding to trial was not impracticable
because the Kayes could have tried the case and pursued their writ
petition simultaneously, relying on this court to resolve the writ issue
before the close of the evidence to enable them to present any
additional evidence and argue the issue to the jury. Putting aside the
practical limitations on counsel's ability to both prepare for trial and
pursue a writ petition, this argument ignores the fact that the
presence or absence of the punitive damage issue might significantly
affect the structure of the Kayes' evidentiary presentation. In any
event, the impracticability of proceeding to trial must be evaluated as
of the time the Kayes' counsel made his decision to give up his trial
date and pursue the writ. We do not think section 583.340 requires
counsel to speculate on how quickly the Court of Appeal will decide a
writ petition and whether it will issue a stay. fn. 4 [204 Cal.App.3d 1486]
Defendants also argue the time constraints faced by the Kayes were a
product of their own making because they had twice arranged to have the
hearing on the summary adjudication motion continued. The fact that the
Kayes took advantage of legitimate procedures to seek short continuances
-- one granted by the court and one stipulated to by the defendants --
cannot in our view be held against them.
Finally, defendants suggest the Kayes cannot be afforded relief because
they took no action on the Monday following the issuance of our writ
opinion to request that the superior court specially set the case for
trial on that day. The prospects for success of such a request aside
(see Civ. Code, § 3532), the Law Revision Commission Comment to section
583.340 states that "the time within which an action must be brought to
trial is tolled for the period of the excuse, regardless whether a
reasonable time remained at the end of the period of the excuse to bring
the action to trial." (16 West's Ann. Code Civ. Proc. (1988 pocket
supp.) § 583.340, p. 47.)
[4] In ruling it was required to dismiss the case, the trial court was
apparently concerned that this court had not issued a stay pending its
resolution of the writ petition. fn. 5
While our handling of the issue in our writ opinion undoubtedly could
have been clearer, the question of whether the five-year statute is
tolled by some applicable exception is generally a question of law to be
resolved after the fact rather than by means of a stay issued by the
appellate court before anyone contends the five years has run. At the
time the Kayes filed their writ petition, their case had already been
taken off calendar. Thus, there was nothing for this court to stay. The
trial court should have drawn no inference from our failure to act on
the Kayes' stay request.
[3b] Accordingly, we conclude the trial court improperly dismissed the
case because, by virtue of the tolling provisions of section 583.340,
the five-year period had not run when the court ordered the case
dismissed. Following issuance of the remittitur in this case, the trial
court shall set a new trial date consistent with the provisions of
section 583.350.
Cause of Action for Subjacent and Lateral Support
[5] The Kayes contend the court prejudicially erred in sustaining
defendants' demurrer without leave to amend their third cause of action
seeking damages for the deprivation of subjacent and lateral support.
The [204 Cal.App.3d 1487] Kayes frankly admit there is no exact
California precedent on the theory of liability which they wish to
establish. They also point out they are disclaiming any reliance on
Civil Code section 832 which statutorily defines the lateral and
subjacent support to which each coterminous owner is entitled. In spite
of these seeming obstacles, the Kayes exhort us to create a new rule
which would impose liability on a condominium association and its
homeowner members for their failure to provide lateral and subjacent
support in the condominium common areas. The Kayes' exhortations are
grounded on their concerns that lacking additional sources of recovery
the individual condominium homeowner will be denied redress because of
limitations periods barring recovery against negligent developers and
builders and the likelihood of shrinking insurance coverage. In
overstating the problem the Kayes ignore the organizational format of
condominium ownership and the respective rights and duties established
by the CC&Rs.
We interpret the Kayes' argument as requiring a condominium association
and its individual members to indemnify any individual homeowner for any
reduction in value to an individual unit caused by damage. Essentially
they assert a concept of strict liability. Under this theory the
association and individual members would not only have the duty to
repair as required by the CC&Rs, but the responsibility to reimburse
an individual homeowner for the diminution in value of such unit
regardless if the repairs had been made or the success of such repairs.
For several reasons we are unwilling to accept this broad rule of
recovery.
Ioitially we fail to understand why the Kayes believe they can assert
causes of action for damages against the Association on a theory that
they were denied the right to engage in self-help to repair the affected
portions of the common area near their unit, but nonetheless believe
they should be able to impose liability against their coowners who
labored under the same restriction. Obviously the Kayes' fellow
co-owners have no greater rights than the Kayes. It would be manifestly
unfair to permit the Kayes to impose liability on co-owners who were
equally powerless to use self-help to repair the common areas. The
democratic process of condominium ownership contained in the CC&Rs
did not create a unique class consisting solely of the Kayes. And if the
economic burden the Kayes wish to impose is somehow tied to the
collective failure of the homeowners to vote for more responsible
members to be governors of the Association, they seek an economic
sanction which has no relationship to the alleged improper conduct,
i.e., an incorrect vote, of the individual homeowners.
We also find it difficult to understand why we should accept the Kayes'
invitation and involve ourselves in the intellectual maze consisting of
the English common law of subjacent and lateral support and the
statutory [204 Cal.App.3d 1488] scheme provided by Civil Code
section 1350 et seq. adopted in 1985 in order to create a new rule of
liability when the existing causes of action seem to accomplish the same
goal. The Kayes seek the same amount of damages in their second cause
of action for breach of fiduciary duty, breach of covenant and the
constructive taking of a property interest as they do in their third
cause of action. In these circumstances there is little reason to create
a new rule when the present remedies are adequate. Moreover, the
frustration which the Kayes manifest because the homeowner association
and its individual members did not act in a reasonable manner is
directed solely to the failure of such persons to perform their
responsibilities in accordance with the CC&Rs. Thus both
conceptually and factually, the third cause of action duplicates other
causes of action.
We reject the Kayes' argument for an additional, perhaps more
fundamental, reason. In attempting to transfer the economic loss caused
by the reduction in value of their condominium to all the condominium
homeowners on a pro rata basis, the Kayes overlook the bargain which
they made at the time they acquired their unit. That bargain
contemplated a harmonious group living arrangement subject to the rights
and duties outlined in the CC&Rs. The CC&Rs require the
governing body to repair common areas. There is nothing in the CC&Rs
about a "forced buy," i.e., requiring individual homeowners to
reimburse an individual homeowner for the diminution in value of a unit
in addition to the cost of repair. Placing dual costs on individual
homeowners, i.e., the cost of repair plus consequential damages is not
only contrary to the bargain but creates a potentially open-ended
financial burden on condominium ownership.
The drafters of the CC&Rs here anticipated difficulties might arise
with reference to the association's duty to repair under certain
circumstances. They expressly provided if repairs were not made for
three years following damage to a material part of the project that an
individual homeowner would be entitled to commence a partition action.
They also provided that partition could be commenced if three-fourths or
more of the project had been destroyed and condominium owners holding
more than 50 percent of the common areas were opposed to repair or
restoration of the project. These provisions limit the remedies of an
individual homeowner so that the economic responsibilities of the
association could be fairly gauged. Although there may be uncertainties
associated with projecting the costs of repair, there is a greater
likelihood of accuracy in doing so than if future costs included a
contingency for consequential damages including a unit's reduction in
value. Restricting the individual homeowner to recovery for the cost of
repairs also avoids the risk of requiring the Association to pay for
unaccrued damages since the homeowner would not have suffered any
damages for reduction in the unit's value until that unit was sold. We [204 Cal.App.3d 1489]
therefore reject the Kayes' desire to engraft the common law rule of
liability for failure to provide lateral and subjacent support to
condominium ownership. The Kayes have adequate redress under the terms
of the bargain made and other aggrieved condominium owners have similar
rights in addition to the rights now prescribed by statute. fn. 6 (Civ. Code, § 1350 et seq.)
Amendment of the Punitive Damage Allegations
The Kayes attempt to challenge the portion of our writ opinion on the
punitive damage question, suggesting we resolved the case against them
as to 9 of the 14 director defendants based on their failure to allege
facts showing "oppression, fraud or malice" sufficient to satisfy the
requisites of Civil Code section 3294. They argue our opinion
incorrectly failed to grant them leave to amend their pleadings to
allege further facts.
Law of the case to one side, fn. 7
the Kayes' writ petition challenged the trial court's summary
adjudication of issues under section 437c, subdivision (f). In support
of their motion, the defendant directors submitted declarations denying
they acted in a manner which would support the award of punitive
damages. This obligated the Kayes to respond with a factual presentation
sufficient to demonstrate there existed an issue of material fact to be
resolved at trial. We determined the Kayes' presentation was sufficient
to warrant denial of the motion with respect to the Association and
five of the director defendants. While it is true our opinion referred
at times to allegations contained in the pleadings, we also repeatedly
mentioned that the declarations created factual conflicts which needed
to be resolved by a trier of fact. Accordingly, amendment of the
pleadings would not be appropriate.
Defendant Class Certification
The Kayes' complaint attempts to plead a portion of their case as a
class action -- not on behalf of a group as in the normal class action
situation but rather against a group, i.e., a defendant class action.
(See generally In re Gap Stores Securities Litigation (N.D.Cal. 1978) 79
F.R.D. 283, 1 Newberg on Class Action (2d ed. 1985) § 4.45 et seq.;
Note, Defendant Class Actions [204 Cal.App.3d 1490] (1978) 91
Harv. L.Rev. 630.) The Kayes seek to include all members of the Mount La
Jolla Homeowners Association in a no opt-out defendant class which they
assert is vicariously liable for the actions of the board of governors
of the Association. They argue a defendant class action is necessary for
several reasons. They point to Corporations Code section 24002, which
provides that a judgment against an unincorporated association may not
be satisfied by resort to the individual assets of a member of the
association unless that member is made a party to the action in his
individual capacity. They also claim an absolute right to join any and
all members of the Association as defendants under section 388,
subdivision (b) fn. 8 and assert that a defendant class action is the only practical means of accomplishing such a result.
On January 6, 1986, the trial court denied the Kayes' motion for
certification of a defendant class. Because an order denying class
certification is generally an appealable order (see Richmond v. Dart
Industries, Inc. (1981) 29 Cal.3d 462,
470 [174 Cal.Rptr. 515, 629 P.2d 23]), the Kayes took an immediate
appeal. When the Kayes filed their notice of appeal in Case No. D006162
from the judgment of dismissal based on the five-year statute, the class
certification appeal was pending in this court. We ordered the two
appeals consolidated for hearing and disposition.
The parties spend the better part of their briefs discussing the
vicarious liability issue, which they approach from markedly different
perspectives. The Association contends if a court can determine as a
matter of law that individual Mount La Jolla members cannot be
vicariously liable for the actions of the board of governors, a
defendant class should not be certified because common classwide issues
will not predominate in the lawsuit. (See generally Richmond, supra, 29
Cal.3d at p. 470; Lazar v. Hertz Corp. (1983) 143 Cal.App.3d 128, 139 [191 Cal.Rptr. 849]; see also Civ. Code, § 1781, subd. (b)(2).) They rely on dicta in Orser v. George (1967) 252 Cal.App.2d 660,
670 [60 Cal.Rptr. 708] to suggest that under California law, members of
an unincorporated association will not be liable for torts committed by
the association's officers or governing board unless they participated
in the tortious conduct, authorized it or in some sense set it in
motion. (See also Steuer v. Phelps (1974) 41 Cal.App.3d 468, 471-472 [116 Cal.Rptr. 61].) fn. 9 [204 Cal.App.3d 1491]
[6a] The Kayes respond that the question of whether individual owners
can be vicariously liable is an issue going to the merits of the lawsuit
which cannot be inquired into during the class certification process
under the rule of Eisen v. Carlisle & Jacqueline (1974) 417 U.S.
156, 177-178 [40 L.Ed.2d 732, 748-749, 94 S.Ct. 2140]. (Accord Home Sav.
& Loan Assn. v. Superior Court (1974) 42 Cal.App.3d 1006,
1013 [117 Cal.Rptr. 485].) They argue the vicarious liability question
is one which can and must be resolved on a classwide basis and suggest a
motion for summary judgment or judgment on the pleadings following
class certification and notice is the proper means of adjudicating this
issue. The Kayes admit class certification would not be proper if their
argument with respect to vicarious liability were a frivolous one. To
refute this suggestion, they point to Davert v. Larson (1985) 163 Cal.App.3d 407,
412 [209 Cal.Rptr. 445] which holds that "tenants in common of real
property who delegate the control and management of the property to a
separate legal entity should not be immunized from liability to third
parties for tortious conduct." Significantly, Davert relies on a Texas
Supreme Court decision, Dutcher v. Owens (Tex. 1983) 647 S.W.2d 948 [39
A.L.R.4th 92], which upheld a judgment in a defendant class action
brought by condominium tenants (the Owens) against their landlord
(Dutcher) and other members of the condominium homeowners association to
recover for personal property destroyed by a fire which began in the
common areas and spread to the Owens' unit. Dutcher held that the
individual owners were vicariously liable for their pro rata share of
the judgment, rejecting an argument for joint and several liability. fn. 10
California commentators have read Davert and dicta in White v. Cox,
supra, 17 Cal.App.3d at pages 830-831, footnote 3 to indicate that
members of homeowners associations will be vicariously liable for common
area torts, at least to the extent of their pro rata ownership of the
condominium development's common areas. (See, e.g., 1 Hanna, Cal.
Condominium Handbook 2d (1986) § 15.7, p. 491; 4 Miller & Starr,
Current Law of Cal. Real Estate (Supp. 1987) § 24:82, p. 229; 11 Hagman
& Maxwell, Cal. Real Estate Law and Practice (1987 rev.) §
385.91[2], p. 385-67.)
Given the unique facts of this case, however, we have concluded we need
not resolve the interesting question of whether, as a general rule,
members [204 Cal.App.3d 1492] of homeowners associations can be
vicariously liable for torts committed by members of the board of
directors of the association. The Kayes concede any liability of the
individual homeowners sought to be joined as class members is vicarious
and derivative of the Association's liability; that is, potential class
members would not be required to pay unless the Association was unable
to satisfy a judgment entered against it. The Association further
represents -- and the Kayes apparently concede -- it has applicable
insurance coverage in an amount sufficient to satisfy all the Kayes'
claims for compensatory damages. But that is not the end of the matter
because the Kayes also seek to recover punitive damages against the
Association on the theory the Association is vicariously liable for the
malicious acts committed by members of the board of directors who were
agents acting in a managerial capacity. (See Rest.2d Torts, § 909, subd.
(c); Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809,
822 [169 Cal.Rptr. 691, 620 P.2d 141].) Even assuming the Kayes' theory
is proper, however, there is no need for certification of a defendant
class consisting of nonparticipant individual homeowners unless there is
some possibility the Kayes will obtain a judgment for punitive damages
against the Association which they will be unable to satisfy by resort
to the Association's assets. Because we view this contingency as legally
impossible, we conclude the trial court did not err in denying the
Kayes' motion for certification of a defendant class.
[7a] In the case of compensatory damages, there is no necessary
relationship between the amount of damages and the defendant's ability
to pay for them. Such is not the case with punitive damages. As we
explained in Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc. (1984) 155 Cal.App.3d 381,
390 [202 Cal.Rptr. 204], "Because the purposes of punitive damages are
to punish the defendant and to make an example of him, 'the wealthier
the wrongdoing defendant, the larger the award of exemplary damages need
be in order to accomplish the statutory objective' (Bertero v. National
General Corp. (1974) 13 Cal.3d 43,
65 [118 Cal.Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878]), from which
'[i]t also follows that the poorer the wrongdoing defendant the smaller
the award of punitive damages need be in order to accomplish the
statutory objective.' (Merlo v. Standard Life & Acc. Ins. Co. (1976)
59 Cal.App.3d 5, 18 [130 Cal.Rptr. 416].)"
In assessing whether the assets of the Association will necessarily be
sufficient to satisfy any punitive damage award, the first issue we must
confront is how is the wealth of an unincorporated association to be
measured. fn. 11 Just as the Kayes concede they do not seek an award of punitive [204 Cal.App.3d 1493]
damages directly against individual members of the Association, we
conclude it would unfairly accomplish the same result if the wealth of
the Association were to be measured by the net worth of the individual
members.
[8] The purpose of punitive damages is to punish a culpable person or
entity for outrageous conduct and thereby deter such conduct. (Rest.2d
Torts, § 908; 6 Witkin, Summary of Cal. Law (9th ed. 1988) § 1327, pp.
784-785.) [7b] The Restatement Second of Torts, section 909 allows for
vicarious liability of employers for punitive damages arising out of
torts committed by managing agents on the assumption that "the
imposition of punitive damages upon the employer serves as a deterrent
to the employment of unfit persons for important positions." (Rest.2d
Torts, § 909, com. b; Mitchell v. Keith (9th Cir. 1985) 752 F.2d 385,
390.) Whatever validity that theory may have as to an unincorporated
association, it clearly does not extend to the association's individual
members who do not control the selection of managing agents except to
the extent of their individual votes for members of the board of
directors. (See White v. Cox, supra, 17 Cal.App.3d at p. 830.) Thus, the
wealth of individual association members is simply not a relevant
consideration where the deterrence rationale underlying the rule does
not support direct punishment of such members.
What limited authority there is on this proposition is consistent with
our conclusion. In Smith v. Courter (Mo.App. 1979) 575 S.W.2d 199, the
plaintiff sued a partnership for compensatory and punitive damages based
on the acts of an employee of the partnership. Although each partner
was named as a defendant, the trial court in instructing the jury as to
punitive damages referred to the defendant as the partnership. fn. 12
The jury returned a single punitive damage award against the
partnership and judgment was then entered against each partner in that
amount. (Id. at pp. 208-209.) Smith noted that evidence of the wealth of
individual members of a partnership is admissible only where individual
awards of punitive damages are appropriate. In that case, however,
there was no basis for any individual award because each partner's
liability was vicarious and identical. (Id. at pp. 209-210.) Thus, any
error in incorrectly referring to the defendant as the partnership was
harmless. (See also Blue v. Rose (8th Cir. 1986) 786 F.2d 349, 352-353.)
Similarly here, where each Association member's liability is [204 Cal.App.3d 1494] vicarious if any, there is no basis for considering individual assets when assessing the Association's net worth.
If the wealth of an unincorporated association is to be measured
independently of the assets of its individual members, the Kayes do not
suggest any way in which an award of punitive damages against such an
association can exceed the association's ability to pay the award. As
the Supreme Court commented in Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910,
928 [148 Cal.Rptr. 389, 582 P.2d 980], "[T]he function of punitive
damages is not served by an award which, in light of the defendant's
wealth and the gravity of the particular act, exceeds the level
necessary to properly punish and deter." "Accordingly," as one court has
indicated, "the punitive damages assessed should bear a reasonable
relationship to the net assets of the defendant." (Little v. Stuyvesant
Life Ins. Co. (1977) 67 Cal.App.3d 451,
469 [136 Cal.Rptr. 653], fn. omitted.) Although factors other than
wealth may be relevant in determining how much the defendant should be
punished, there can be no circumstances in which the necessity for
punishment compels an award in excess of the defendant's ability to pay.
Consistent with this principle, numerous cases have found awards of
punitive damages excessive which constituted a significant percentage of
the defendant's net worth. (See, e.g., Seeley v. Seymour (1987) 190 Cal.App.3d 844,
868 [237 Cal.Rptr. 282 (reversing as excessive an award representing
200 percent of the defendant's net worth); Goshgarian v. George (1984) 161 Cal.App.3d 1214,
1228 [208 Cal.Rptr. 321] ("awards exceeding 10 percent of a defendant's
net worth have generally been disfavored by the appellate courts");
Burnett v. National Enquirer (1983) 144 Cal.App.3d 991,
1012 [193 Cal.Rptr. 206, 49 A.L.R.4th 1125] (reducing a 35
percent-of-net-worth award); Little v. Stuyvesant Life Ins. Co., supra,
67 Cal.App.3d at pp. 469-470 (reversing an award which constituted in
excess of 15 percent of the defendant's net worth); Merlo v. Standard
Life & Acc. Ins. Co., supra, 59 Cal.App.3d at p. 18 (punitive
damages of nearly one-third of defendant's net worth "excessive as a
matter of law"); see also Egan v. Mutual of Omaha Ins. Co., supra, 24
Cal.3d at p. 824 (award representing more than seven months of
defendant's annual net income deemed excessive).) From these principles
it necessarily follows that an award of punitive damages against the
Association cannot exceed the Association's ability to pay and hence,
there is no practical need to join any individual members of the
Association as defendants.
[6b] Although we have touched on a variety of legal issues, it bears
emphasis that the focus of this opinion is on the propriety of the trial
court's [204 Cal.App.3d 1495] denial of the class certification on motion. fn. 13
Class certification is a procedural device designed to save time and
minimize costs. California courts have liberally interpreted the
procedural prerequisites for class certification creating and fostering
an environment conducive to the extensive use of class actions in a
variety of contexts to simplify complex litigation. (E.g., Vasquez v.
Superior Court (1971) 4 Cal.3d 800 [94 Cal.Rptr. 796, 484 P.2d 964, 53 A.L.R.3d 513]; Richmond v. Dart Industries, Inc., supra, 29 Cal.3d 462; Cartt v. Superior Court (1975) 50 Cal.App.3d 960 [124 Cal.Rptr. 376]; Hogya v. Superior Court (1977) 75 Cal.App.3d 122 [142 Cal.Rptr. 325]; Lazar v. Hertz Corp., supra, 143 Cal.App.3d 128.)
Occasionally, however, the benefits of a class action simply do not
exceed its costs. (See Blue Chip Stamps v. Superior Court (1976) 18 Cal.3d 381,
389 [134 Cal.Rptr. 393, 556 P.2d 755] (conc. opn. of Tobriner, J.).)
Because we can conceive of no circumstances in which the Kayes will need
to resort to the assets of individual Association members to satisfy
any potential judgment on the theories they have alleged, we believe
this is one of those unusual occasions. Accordingly, the trial court did
not err in denying the Kayes' motion for certification of a defendant
class.
The judgment of dismissal is reversed. The order denying certification
of a defendant class is affirmed. The parties shall bear their own costs
for this appeal.
Work, J. and Brown (Gerald), J., concurred.
FN 1.
The Kayes sought to sue the individual homeowners on a vicarious
liability theory as a defendant class. (See post, pp. 1489-1494.)
FN 2. All statutory references are to the Code of Civil Procedure unless otherwise indicated.
FN 3. In General Motors Corp. v. Superior Court (1966) 65 Cal.2d 88,
98 [52 Cal.Rptr. 460, 416 P.2d 492], the Supreme Court extended the
Christin rule, holding the five-year statute may be tolled during the
pendency of an extraordinary writ petition if it would be impracticable
to bring the action to trial before the petition was resolved.
FN 4.
In this sense, an attorney who decides not to proceed to trial may act
at his peril. If he is correct and his writ petition is ultimately
deemed meritorious, his decision to forego trial effectively results in
the same situation as if a stay had issued to prevent a trial. On the
other hand, if the writ petition is denied, it may be later determined
that it was not impracticable to proceed to trial because the remedy at
law was adequate.
FN 5. The court's minute order granting defendants' motion to dismiss contains the following notation: "matter not stayed by DCA."
FN 6.
The foregoing discussion assumes that the damage for which the Kayes
seek recovery is repairable. If that is the case, we reject their
contention that they may also recover for any diminution in the value of
their property. The Kayes suggest, however, that some of the damage for
which the Association is responsible has not yet been adequately
repaired and ultimately may not be repairable. If that turns out to be
the case, we express no opinion on whether the Kayes may recover for the
diminution in the market value of their property resulting from the
unrepairable defect.
FN 7.
The Kayes appropriately point out that while the law-of-the-case
doctrine would normally apply to preclude their raising this issue, our
decision to make our opinion final immediately effectively precluded
their arguing this issue in a petition for rehearing.
FN 8.
Subdivision (b) of section 388 provides as follows: "Any member of ...
[an] unincorporated association may be joined as a party in an action
against the unincorporated association. If service of process is made on
such member as an individual, whether or not he is also served as a
person upon whom service is made on behalf of the unincorporated
association, a judgment against him based on his personal liability may
be obtained in the action, whether such liability be joint, joint and
several, or several."
FN 9.
We observe that even under Orser, as interpreted in Steuer, members of
an association will be vicariously liable if they entrust another member
with the means to commit a tortious act. Here, it is arguable that by
entrusting the maintenance and repair of common areas to the Mount La
Jolla board of governors, the individual condominium owners become
exposed to vicarious liability.
FN 10.
We recognize that both Davert and Dutcher involve suits by third
parties seeking to impose vicarious liability on individual members of
an association. However, in White v. Cox (1971) 17 Cal.App.3d 824
[95 Cal.Rptr. 259], the court held that a member of a condominium
homeowners association may sue the association for damages arising out
of the improper maintenance of common areas in the condominium project.
Mount La Jolla does not appear to argue that homeowners association
members should be vicariously liable to third parties but not to other
members damaged by tortious acts of the association governing board and
in any event provides no authority in support of such a distinction.
FN 11.
We recognize "[n]et worth generally is considered the best measure of a
defendant's 'wealth' for the purposes of assessing punitive damages."
(Devlin, supra, 155 Cal.App.3d at p. 391.) We do not consider whether
the net worth of an unincorporated association might be deemed to
include its ability to assess its members for certain types of costs.
FN 12.
Apparently under Missouri law, a partnership is a nonexistent entity
and cannot be sued. (Id. at p. 208.) In contrast, under California law, a
partnership or other unincorporated association "may sue and be sued in
the name which it has assumed or by which it is known." (Code Civ.
Proc., § 388, subd. (a); see generally Barr v. United Methodist Church
(1979) 90 Cal.App.3d 259, 264-265 [153 Cal.Rptr. 322].)
FN 13.
Because it is unnecessary to our holding, we express no opinion on the
fundamental question whether individual members of an unincorporated
association may be held vicariously liable for punitive damages assessed
against the association. As previously noted, the Kayes maintain that
Code of Civil Procedure section 388, subdivision (b) requires that they
be allowed to join all members of the Mount La Jolla Homeowners
Association as defendants. (See ante, p. 1490.) No such attempt has been
made and the propriety of such a tactic is not currently before us.