Property Owners, etc. vs. Northwood Property OA
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PROPERTY OWNERS FOR A FAIR HOA v. NORTHWOOD PROPERTY OWNERS ASSOCIATION
First Appellate District, Division Four
(March 13, 2018) Unpublished Decision
 

COUNSEL
Michael William Thomas, Thomas & Associates, 2390 Professional Drive, Roseville, CA 95661–7745, Mark Hopkins Potter, II, 411 Russell Avenue, Suite 105, Santa Rosa, CA 95403, for Plaintiff and Respondent.

Deborah S. Bull, Perry, Johnson, Anderson, Miller & Moskowitz LLP, 438 First Street, 4th Floor, Santa Rosa, CA 95401, for Defendant and Appellant.

OPINION
RUVOLO, P.J.

I.
INTRODUCTION

*1 Respondent Property Owners for a Fair HOA (the Owners) filed an action for injunctive and declaratory relief against appellant Northwood Property Owners Association (NPOA) to prevent them from enforcing short-term rental restrictions on the Northwood Subdivision, a housing development along the Russian River in Sonoma County. At trial, the Owners alleged the Northwood Subdivision was a common interest development under the Davis–Stirling Common Interest Development Act (Davis–Stirling Act or the Act)1 and therefore NPOA could not amend the covenants, conditions, and restrictions (CC&Rs) to impose rental restrictions. The trial court found in favor of the Owners and awarded them attorney fees under both sections 5975 and 1717. We affirm.

II.
FACTUAL AND PROCEDURAL BACKGROUND

NPOA was formed in 1967 “to acquire title to real property in Sonoma County to be held for the recreation, pleasure and social purposes of the members of the association.” All members of NPOA are Northwood Subdivision owners. The development was originally formed as three separate subdivisions: Northwood Subdivision Nos. 1, 2, and 3 with identical CC&Rs. In 1976, they were combined into one. NPOA's bylaws state it is a California nonprofit mutual benefit corporation and its purpose is “to manage” the Northwood Subdivision.

In 2004, NPOA acquired property, the nature preserve, along the Russian River and the CC&Rs were amended to incorporate the nature preserve along with a beach preserve within the equitable servitudes recorded against all Northwood Subdivision properties. The CC&Rs state: “The Nature Preserve is that property located at 19529 and 19531 Redwood Drive. The (‘Preserve’) is for the preservation of California native plants for the protection of wild birds and animals, and the enjoyment of the members of the Association and their families. The Beach property is that property located from the river side of the property lines to the approximate middle of the Russian River of those properties from and including 19387 to 19547 Redwood Drive. The purpose of the Beach Property is for the protection of the plants and trees along the river bank to minimize erosion and fire and for the enjoyment and recreation of the members of the Association and their families.” These lots, however, were used not only by NPOA members, but all owners. Owner and NPOA member, Kelly Clarke, testified she became aware that the beach and nature preserves were supposed to be only for use by NPOA members in 2014.

In 2007, the NPOA adopted an amended “Declaration of Protective Covenants and Restrictions Applicable to Northwood Subdivision” that “the owners of the majority of the lots ... are agreed on making certain amendments and changes to the Declarations and it is the desire and intent of said owners to continue to impose salutary restrictions, pursuant to the general plan or scheme of improvement for the benefit of the whole said Subdivision and each and every lot therein and the present and future owners thereof.” All properties in the subdivision were subject to the limitations, restrictions, conditions, and covenants to protect the value and attractiveness of the subdivision.

*2 In 2013, NPOA amended its bylaws to define membership as those who pay annual membership dues. In 2014, NPOA passed an amendment to the CC&Rs providing that no short-term rentals were permitted in the Northwood Subdivision. The NPOA sent ballots to all owners in the Northwood Subdivision with a return address of NPOA's post office box. (RT 66–67, 73–74, Ex. 26.) The NPOA did not set forth a required quorum. The NPOA board limited the vote to parcel owners rather than to individual lots.
The Owners argued NPOA did not comply with the voting procedures required by the Davis–Stirling Act. The Act required NPOA to adopt and maintain election rules and that any vote must be supervised by an appropriate inspector of elections. (§ 5100.)
The Owners filed a first amended complaint for injunctive and declaratory relief against NPOA seeking to prevent NPOA from enforcing rental restrictions on the Northwood Subdivision. It alleged that in 2007, NPOA acquired property along the Russian River and amended the CC&Rs for the Northwood Subdivision. The acquired property was a common usage property making the Northwood Subdivision a common interest development subject to the Davis–Stirling Act. In 2014, NPOA amended the CC&Rs to restrict Northwood Subdivision owners from offering short-term property rentals. The Owners alleged this was not in compliance with the Davis–Stirling Act. The Act prohibits a homeowners' association from imposing rental restrictions on existing owners of a common interest development.

A. Statement of Decision and Hearing

On May 19, 2016, the trial court issued a proposed statement of decision. The trial court found that the Northwood Subdivision “is a common interest development as defined by law.” Section 4740 precluded NPOA from imposing rental restrictions, and applicable voting requirements were not followed rendering the rental restriction void.

NPOA filed objections to the proposed statement of decision. The court held a further hearing on August 2, 2016. NPOA argued the owners did not have access to the beach and nature preserves unless they were members of NPOA. The court stated that based upon its review of the evidence, membership in NPOA was not clearly defined and it appeared that owners could be members even if they did not pay dues. NPOA argued that based on the trial testimony there was a distinction between the members and owners.
There were 101 owners but only 66 were paying members of NPOA. The court responded that it was not until 2013 that the term “membership” was clearly defined. All owners were subject to the rules and regulations of NPOA, whether they paid dues or not.
The Owners argued whether all owners were members was not determinative of the issue whether NPOA was a common interest development because 66 members had the beneficial right to use the land owned by the association.

On August 10, 2016, the court issued a final statement of decision reaching the same conclusion as its tentative decision. The court found that rights and powers of the CC&Rs were transferred to NPOA in 2007 and all owners shared use of the beach and nature preserves. The court found that as of 2007, NPOA became a common interest development under the Davis–Stirling Act. The court cited the testimony of NPOA President, Candace Healy, who stated NPOA sent letters to all owners even if they were not NPOA members.

In 2013, the bylaws were amended to provide that members of the NPOA were those who paid annual membership dues. Until 2013, “all lot owners enjoyed use of the beach and nature preserve properties.”

*3 The court found “the language of the 2007 document ... satisfies the requirements of section 4250[, subdivision] (a)” which outlines the required contents of a declaration. As of 2007, all lot owners were members of NPOA. The court further found even if the beach and nature preserves were restricted to paying members of NPOA, and not all owners, they would still constitute common areas under section 4145 because they would be “ ‘for the exclusive use of one or more, but fewer than all, of the owners of the separate interests.’ ”

NPOA operates as a common interest development homeowner's association: it manages the entire Northwood Subdivision, maintains the common areas, and enforces the CC&Rs. The court permanently enjoined NPOA from enforcing the amendment to the CC&Rs restricting short-term rentals.

B. Attorney Fees

The Owners filed a motion for the award of attorney fees arguing the 2014 CC&Rs contained an attorney fee provision to the prevailing party in any CC&R dispute. The Owners were also entitled to fees under section 5975 which states fee awards are mandatory. In its opposition and at the hearing on the attorney fee motion, NPOA argued the Owners' legal action was not to “enforce” the CC&Rs but rather to have the court determine if Northwood Subdivision was a common interest development under the Davis–Stirling Act.
The Owners countered that the 2007 Amendment created a common interest development and they sought to enforce it.

The court granted the motion for attorney fees finding the “primary dispute here is whether Plaintiff is entitled to fees for its claims under authority for actions to ‘enforce the governing documents' of a common interest development.” Section 5975 governs the enforceability of CC&Rs in common-interest developments. CC&Rs are enforceable equitable servitudes. Under section 5975, subdivision (c), a prevailing party shall recover attorney fees “[i]n an action to enforce the governing documents.” The court cited to Tract 19051 Homeowners Assn. v. Kemp (2015) 60 Cal.4th 1135 (Kemp ) where the homeowners successfully defended against an action to find a development was a common interest development.

The court further found the Owners were entitled to attorney fees under section 1717. The same rules apply to the interpretation of CC&Rs as the interpretation of contracts. (Chee v. Amanda Goldt Property Management (2006) 143 Cal.App.4th 1360, 1377.)
The court concluded the Northwood Subdivision was a common interest development and the CC&Rs were unenforceable under the Davis–Stirling Act. Thus, the Owners prevailed in their enforcement action. The court awarded the Owners $52,010.50.

III.
DISCUSSION

A. The Northwood Subdivision Is a Common Interest Development

NPOA argues we should apply de novo review because interpretation of the CC&Rs and whether the Northwood Subdivision falls under the Davis–Stirling Act is an issue of statutory construction. “We defer to the court's factual findings regarding the relationship between [the homeowners' association] and [housing development] when they are supported by substantial evidence, but independently construe the act.” (Golden Rain Foundation v. Franz (2008) 163 Cal.App.4th 1141, 1147 (Golden Rain ).)
The Davis–Stirling Act governs common interest developments: “This act applies and a common interest development is created whenever a separate interest coupled with an interest in the common area or membership in the association is, or has been, conveyed, provided all of the following are recorded: [¶] (a) A declaration. [¶] (b) A condominium plan, if any exists. [¶] (c) A final map or parcel map ....” (§ 4200, formerly § 1352.)

*4 Association “means a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development.” (§ 4080.) A common area “means the entire common interest development except the separate interests therein” and “the common area may consist of mutual or reciprocal easement rights appurtenant to the separate interests.” (§ 4095, subds. (a) & (b).)

NPOA argues that it is not and never has been a common interest development. It argues that there are three requirements to be a common interest development: (1) an association created to manage the common interest development, (2) a beneficial interest in the common areas and, (3) a planned development. NPOA contends the Northwood Subdivision meets none of the requirements. We will examine each in turn.

1. NPOA Manages the Northwood Subdivision

First, NPOA argues it is not an association created to manage a common interest development.

In Golden Rain, the Golden Rain Foundation (GRF), argued the trial court incorrectly found it was an association under the Davis–Stirling Act. (Golden Rain, supra, 163 Cal.App.4th at p. 1147.) The GRF was a California nonprofit association. (Id. at p. 1144.) The court considered whether GRF was “created for the purpose of managing” Leisure World, a senior housing development, and whether Leisure World was a common interest development. (Id. at pp. 1145, 1147.) The Fourth District concluded that the governing documents supported the trial court's finding that the purpose of the GRF was to manage Leisure World. (Id. at p. 1148.) GRF operated and managed the common facilities at Leisure World and “GRF has acknowledged it was created to manage Leisure World.” (Id. at pp. 1148–1149.) GRF has no business except that which related to Leisure World. (Id. at p. 1149.) “The declaration of trust provides GRF was ‘formed primarily for the purpose of providing services and furnishing community facilities' to the Mutuals and the residents.” (Ibid., italics omitted.) Leisure World residents held a separate interest in their condominiums as well as an interest in the common areas. (Id. at p. 1151.)

Like GRF in Golden Rain, NPOA argues it is not an association as defined by the Davis–Stirling Act, but the evidence showed that NPOA is a nonprofit mutual benefit corporation. NPOA's purpose was to hold title for the “recreation, pleasure and social purposes of the members of the Association.” In its briefing, NPOA admits it managed the Northwood Subdivision, but argues this was not “its only business or purpose.” It sponsored social events and maintained properties for the benefit of its members. The trial court found that NPOA managed the entire Northwood Subdivision, maintained the common areas, and enforced the CC&Rs.

We conclude the court's findings are supported by substantial evidence.

2. The Owners Shared a Beneficial Interest in the Common Areas

Second, NPOA argues the owners do not have beneficial interest in a common area.

In Mount Olympus Property Owners Assn. v. Shpirt (1997) 59 Cal.App.4th 885 (Mount Olympus ), the parties disputed whether the Mount Olympus tract was a common interest development under the Davis–Stirling Act for purposes of recovery of attorney fees. The Mount Olympus Property Owners Associations (MOPOA) owned two small plots of land where signs were posted, but did not own roads, open spaces, or other common property. (Id. at p. 895.) There was no mandatory membership in the MOPOA which was a purely voluntary association of homeowners with no power to collect assessments. (Ibid.) MOPOA failed to establish there was a separate interest coupled with an interest in a common area or membership in the association as required under section 4200 (formerly section 1352). (Id. at pp. 895–896.)

*5 In Mount Olympus, the MOPOA did not own common areas for the use of the homeowners. Here, NPOA owned both the beach and nature preserves for the benefit and use of NPOA members, who were the Northwood Subdivision owners. The trial court found until 2013, “all lot owners enjoyed use of the beach and nature preserves properties.” (Italics omitted.) The CC&Rs included all Owners and the common lots were deeded to the NPOA and “these lots are common areas for the enjoyment and use of the lots owners whose lots comprise the NPOA.”

NPOA argues that the 2007 amendment does not state that the preserves were for the benefit of all owners, but for members, which meant members of NPOA. However, the term “member” is not defined. The NPOA bylaws were not amended until 2013 to define members as those who paid annual membership dues.

Next, NPOA argues the fact that the preserves benefit all owners is insufficient to create a common area. In Committee to Save Beverly Highlands Homes Assn. v. Beverly Highlands Homes Assn. (2001) 92 Cal.App.4th 1247 (Beverly Highlands ), the Beverly Highland development was not a common interest development. The court concluded the Beverly Hills Homes Association was a nonprofit mutual benefit corporation created to oversee the Beverly Highlands, but it did not own any lots in the Beverly Highlands development. (Id. at p. 1252.) Beverly Highland owners were members of the association. The operative declaration stated that two specific lots, lots 65 and 66, were restricted for use only as open space. (Ibid.) The planting and care of the lots was the duty of the association. (Id. at p. 1253.) The association sought a vote of its members whether it should purchase lot 66 as a common area so the development would fall under the purview of the Davis–Stirling Act, but the members voted “no.” (Id. at p. 1254.)

Planned developments are generally governed by CC&Rs or declarations. (Beverly Highlands, supra, 92 Cal.App.4th at p. 1270.) The language in the declaration at issue in that case created covenants running with lots 53, 62, 65 and 66, and restricted use of that land. (Ibid.) But “[i]t does not give the owners of the other lots in the Beverly Highlands any interest in those lots or any right to use those lots for their own enjoyment.” (Ibid.) The Beverly Highlands had no common area and the appellate court concluded it was not a common interest development. (Id. at pp. 1270–1271.)

Unlike Beverly Highlands, NPOA owned four lots that were common areas for the owners and NPOA members. The beach and nature preserves were created for the benefit and enjoyment of NPOA members. As of 2007 when the rights and powers of the CC&Rs were transferred to the NPOA, all owners shared in the beach and nature preserves. All owners had access to these common areas until 2013. The trial court found that even if the beach and nature preserves were restricted to dues-paying members of NPOA, they still constituted common areas for the Northwood Subdivision. Under section 4145, a common area can be “for the exclusive use of one or more, but fewer than all, of the owners of the separate interests.”

3. The Northwood Subdivision Was a Planned Development

NPOA's third argument is that the 2007 amendment does not state the Northwood Subdivision is a planned development.

A planned development is a real property development which has “either or both of the following features: [¶] (a) Common area that is owned either by an association or in common by the owners of the separate interests who possess appurtenant rights to the beneficial use and enjoyment of the common area” or “(b) Common area and an association that maintains the common area with the power to levy assessments that may become a lien.” (§ 4175.)

*6 Under section 4175, the beach and nature preserves were common areas owned by NPOA for the beneficial use and enjoyment of the owners. This qualifies as a planned development under the Act. The trial court found that under section 4250, the 2007 amendment met the requirement of a planned development. The amendment states that the owners intend “to continue to impose salutary restrictions, pursuant to a general plan or scheme of improvement for the benefit of the whole said Subdivision and each and every lot therein and the present and future owners thereof.”

This case is distinguishable from Mount Olympus. In Mount Olympus, MOPOA owned only two small parcels of land on which the sign for the development was located. (Mount Olympus, supra, 59 Cal.App.4th at p. 895.) MOPOA did not own any land within the neighborhood. (Ibid.). Under the Act, there was not a “ ‘separate interest coupled with an interest in the common area or membership in the association.’ ” (Ibid.) Here, the owners had a separate interest in their individual properties coupled with an interest in the common areas—the beach and nature preserves—as well as a membership in the NPOA.2

NPOA argues the amendment failed to provide a legal description of the common interest development. The 2007 amendment, however, refers to the four prior recorded declarations in 1960, 1961, 1963, and 1975, which contain legal descriptions of the property.
At oral argument, NPOA contended the trial court erred in finding it was a common interest development because there was no evidence it subjectively intended for the Davis–Stirling Act to apply. Contrary to NPOA's argument, however, the provision of the Davis–Stirling Act that governs the contents of the required declaration, section 4250, does not contain any requirement that the declaration include an express reference to the Act or to the association's intent.3

The 2007 amended declaration states that all properties in the Northwood Subdivision are subject to its limits, restrictions, and covenants to protect the value and attractiveness of the subdivision. It sets forth the name of the association, the NPOA, and it specifically includes the nature preserve and beach properties, which are common areas for the use and enjoyment of Northwood Subdivision property owners.

In Golden Rain, the parties raised a similar claim and the court noted the declaration was “just one element of a common interest development. The defining feature of a common interest development is the conveyance of ‘a separate interest coupled with an interest in the common area or membership in the association ....’ [Citation.]” (Golden Rain, supra, 163 Cal.App.4th at p. 1154.) We have that here, so whether NPOA intended to be a common interest development is not relevant since they meet the other elements to qualify under the Davis–Stirling Act.4

*7 Finally, NPOA argues finding it was a common interest development based on the 2007 amendment leads to an unjust and harsh result. NPOA has not demonstrated application of the Davis–Stirling Act is unjust here. NPOA acquired the beach and nature preserves for the benefit of the Northwood Subdivision and amended the CC&Rs. The fact NPOA may have been unaware that these actions subjected them to the Davis–Stirling Act does not lead to an “extraordinary and absurd result.” The NPOA cites to no authority that the Davis–Stirling Act should not be applied under these circumstances.5

B. The Court Properly Awarded Attorney Fees to the Owners as the Prevailing Party

Whether attorney fees may be awarded is a question of law, which we review de novo. (Dzwonkowski v. Spinella (2011) 200 Cal.App.4th 930, 934.) “With regard to an award of attorney fees in litigation, California generally follows what is commonly referred to as the ‘American Rule,’ which provides that each party to a lawsuit must ordinarily pay his or her own attorney fees. [Citation.]” (Kemp, supra, 60 Cal.4th at p. 1142.)

Section 5975 provides for the recovery of attorney fees and costs incident to the enforcement of covenants and restrictions in a homeowners' association declaration: “In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney's fees and costs.” (§ 5975, subd. (c), italics added.) “[T]he Davis–Stirling Act ‘ “reflect[s] a legislative intent that [the prevailing party] receive attorney fees as a matter of right (and that the trial court is therefore obligated to award attorney fees) whenever the statutory conditions have been satisfied.” ’ [Citation.]” (Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761, 773, italics omitted.)

The CC&Rs at issue here state if a person brought an action “to restrain violations or to recover damages for such violations, the violator defendant must pay attorney's fees to a successful plaintiff in the amount that the court shall determine to be a reasonable sum.”
To determine whether the Owners' action is to enforce the Davis–Stirling Act's election provisions or the Association's governing documents, we look to the gravamen of the claims. (Rancho Mirage Country Club Homeowners Assn. v. Hazelbaker (2016) 2 Cal.App.5th 252, 259–260.) In their first amended complaint, the Owners allege NPOA violated the Act by imposing rental restrictions. They sought an injunction barring the “NPOA from enforcing the Declaration or otherwise restricting rentals within the Northwood Subdivision.”

In Kemp, the homeowners' association filed an action against Kemp seeking declaratory and injunctive relief, alleging that they lived in a common interest development and Kemp had violated restrictions on remodeling. (Kemp, supra, 60 Cal. 4th at pp. 1138, 1140.) The trial court found the homeowners' association had failed to demonstrate it was a common interest development, but Kemp was entitled to attorney fees. (Id. at p. 1139.) Our Supreme Court held: “When a lawsuit is brought to enforce what the complaint expressly alleges are the governing documents of a common interest development, the action would ordinarily be understood to be ‘an action to enforce the governing documents [of a common interest development]’ as that clause is used in former section 1354[, subdivision] (c). Whether or not the plaintiff in the action is ultimately successful in establishing that the documents relied upon are in fact the governing documents of a common interest development would not affect the character or type of action that has been brought.” (Id. at p. 1144.)

*8 Like Kemp, the first amended complaint here alleged an action to enforce the governing documents of a common interest development. Here, the trial court found that the Owners “claimed the Subdivision is a common-interest development, and sought to demonstrate that certain Amended CCRs are unenforceable as in violation of the Davis–Stirling Act .... This clearly involves a dispute over enforcement of the CCRs.” We agree. The gravamen of the claim here is an action regarding enforcement of the governing documents of the Northwood Subdivision. As such, the Owners as the prevailing party are entitled to attorney fees.

NPOA relies on Salawy v. Ocean Towers Housing Corp. (2004) 121 Cal.App.4th 664, 667 which held that “a defendant's successful invocation of the governing documents as a defense does not entitle it to attorney fees if the claim was not brought to enforce those documents.” The cause of action was based upon a promise unrelated to the governing documents. (Id. at p. 671.) Here, however, the cause of action was based upon the CC&Rs themselves.

In its order granting attorney fees, the trial court also referenced the fee provision of section 1717. Section 1717 provides: “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.” (§ 1717, subd. (a).)

Here, the Owners were entitled to attorney fees based upon both contract and statute. (Arias v. Katella Townhouse Homeowners Assn., Inc. (2005) 127 Cal.App.4th 847, 852 (Arias ).) CC&Rs are interpreted as contracts. (Fourth La Costa Condominium Owners Assn. v. Seith (2008) 159 Cal.App.4th 563, 575.) The trial court found the Owners claimed that the Northwood Subdivision was a common interest development and sought to demonstrate the amended CC&Rs were unenforceable as a violation of the Davis–Stirling Act. As a dispute about the enforcement of the CC&Rs, a contract, section 1717 applies. Where the CC&Rs permit recovery of attorney fees by a prevailing party in an action to enforce their provisions, the prevailing party has a contractual entitlement to attorney fees and costs. (Arias, at p. 852.) Thus, the trial court properly awarded fees under section 1717, as well as section 5975.

IV.
DISPOSITION

The judgment is affirmed. We award costs on appeal to Respondent.

We concur:
REARDON, J.
SCHULMAN, J.*

Footnotes

1. Civil Code section 4000, et seq. All subsequent references are to the Civil Code unless otherwise identified.

2. There was a total of 101 owners and 66 of them were paying members of NPOA.

3. Section 4250, subdivision (a) states: “A declaration, recorded on or after January 1, 1986, shall contain a legal description of the common interest development, and a statement that the common interest development is a community apartment project, condominium project, planned development, stock cooperative, or combination thereof. The declaration shall additionally set forth the name of the association and the restrictions on the use or enjoyment of any portion of the common interest development that are intended to be enforceable equitable servitudes.”

4. NPOA's argument is also inconsistent with a basic principle of California law, which recognizes “the objective theory of contracts [citation].” (Iqbal v. Ziadeh (2017) 10 Cal.App.5th 1, 8.) Under that theory, “ ‘[i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation’ [citation.] The parties' undisclosed intent or understanding is irrelevant to contract interpretation. [Citations.]” (Ibid.)

5. We see no unjust or harsh result, particularly in light of the apparent reality that NPOA can present the disputed amendments to the CC&Rs again in compliance with the Davis–Stirling Act.

* Judge of the Superior Court of California, County of San Francisco, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

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