WRIGHT V. MORNINGSIDE COMMUNITY ASSOCIATION
Fourth Appellate District Division Two
(October 31, 2018) UNPUBLISHED
Jackson Tidus, M. Alim Malik and Kathryn M. Casey, for Defendants and Appellants.
Law Offices of Joseph Amato and Joseph Amato for Plaintiffs and Respondents.
Plaintiffs and respondents Laurel Wright and Marvin Hersh, homeowners in a residential desert community, challenge an amendment to their homeowners association's covenants, conditions and restrictions (CC & Rs) that added a $250 monthly assessment to cover the costs associated with the members-only golf and tennis club located within the community, and the assessment of $550.96 per lot “to fund defense of case # 1505335,” the original lawsuit filed by homeowners who sought to challenge the $250 monthly assessment. Plaintiffs sued several defendants, including appellants The Morningside Community Association (Association), and its directors: Randy Zien, Jack Buckingham, Ron Kolar, Wayne Pollard, Chris Norman, Liza Ivins-Hazelrig, and George Rotner (collectively referred to as Association Defendants). Association Defendants filed a special motion to strike the action as a strategic lawsuit against public participation (anti-SLAPP motion1) pursuant to Code of Civil Procedure section 425.16. The trial court denied the anti-SLAPP motion on the grounds that plaintiffs' causes of action did not arise out of protected activity. We affirm.
I. PROCEDURAL BACKGROUND AND FACTS2
Plaintiffs are residents of the Morningside Community in Rancho Mirage, California. The Association manages the common areas of Morningside Community. Located within Morningside Community is the Club at Morningside (Club), a members-only golf and tennis club. All residents are members of the Association; however, at the time relevant to this action, only 58 percent of the members of the Association were also members of the Club (Club/Association Members).
In 1983, CC & Rs for the Association were recorded. The CC & Rs provide for assessments on each residence in order to pay for common expenses, including maintenance of common areas, and facilities in Morningside Community. Separate from common areas are the property and facilities located within the Club. “The Club Property is completely independent of the Property and is for the exclusive use and enjoyment of persons holding (a) membership in The Club at Morningside, Inc., or (b) other rights of entitlement therein.” Article 5 of the CC & Rs governs imposition of assessments against Association members, which “must be fixed at a uniform rate for all Lots.” There are four types of assessments authorized: regular, special, reimbursement, and emergency. Regular assessments are used to “fund the Association's anticipated Common Expenses ....”
Due to the recession of 2008, golf course communities found it difficult to attract and retain members. The Club relied on member dues as its primary source of revenue, and as membership dropped, the Club asked the Association for financial assistance. By 2014, the Club did not have sufficient income or capital funds to “maintain itself as a first class golf club in the long term.” By early 2015, the number of Club/Association Members dropped from 80 percent to 58 percent. The governing boards of both the Association and the Club worked together to consider strategies for long-term viability of the Club.
In March 2015, relying on the legal advice of David M. Peters, of Peters & Freedman, LLP (Peters Defendants), the Association's directors notified residents that it was considering a new assessment or fee (Proprietary Fee) in the amount of $250 per month. The funds generated by this new assessment would be “dedicated solely to and used for the maintenance and landscaping of the golf course property at today's current standards.” Payment by residents who were not Club members did not grant ownership interest or privileges in the Club or its property. Although the fee appeared to be facially neutral in that it would be assessed against all residents equally, Club/Association Members would receive a credit of 100 percent of the fee towards Club dues. Adoption of the Proprietary Fee required an amendment to the CC & Rs approved by a majority of the residents.
Before the announcement of an election regarding the Proprietary Fee, the Club formed a volunteer committee to telephone Club/Association Members. In these phone calls, volunteers sought to determine the Club/Association Members' preferences regarding the Proprietary Fee concept, to answer questions, and to inform the Club/Association Members that passage of the Proprietary Fee concept would require sufficient affirmative votes to amend the CC & Rs. The Club polled its members, and in an email dated March 17, 2015, Club president Goepel advised: “ ‘As we have personally contacted almost all of our 210 member home owners, I can report that there is overwhelming support for this position [i.e., the Proprietary Fee concept].’ ” From the polling data, the Club prepared a spreadsheet reflecting each member that had been contacted and his or her stated opinion, if any, regarding the Proprietary Fee. On the Club's spreadsheet, members “were grouped into ‘yes,’ ‘no,’ ‘no preference,’ and ‘not sure’ categories, or their equivalent, based on those members' stated opinions.”
Because passage of the Proprietary Fee would result in residents who were not Club members subsidizing the Club, the Association's directors (who were also Club members) and the Club had a direct financial interest in the outcome of the election. The Association appointed Mr. Peters to be the inspector of elections.
On April 12, 2015, the Association informed its membership of the benefit package offered by the Club should the Proprietary Fee be approved: Any resident who joined the Club would get 100 percent credit of the amount of the Proprietary Fee applied towards Club dues, waiver of initiation fees for residents for 60 days following the election, credits toward initiation fees for subsequent purchasers of homes for two years following the election, and a new “Tennis Membership.” During the campaign, both proponents and opponents of the Proprietary Fee vocalized their positions.
The Club requested and obtained from the Association updates regarding which Club/Association Members had turned in ballot packages.3 The Peters Defendants had supplied this information (ballot packages received) to the Association, including a list of members who had not voted. With that information, the Club reviewed its original list of Club/Association Members who were contacted in March 2015 to determine which of those members had not yet voted. A Club volunteer contacted those Club/Association Members to verify whether they had received a ballot package. Because several members were Canadian residents who had returned to Canada, their ballot packages had been sent to their Morningside residences. Those members were advised to contact the Association to request new ballot packages. Also, many of the Canadian members' balloting materials failed to include the correct postage amount for returning their ballot packages. They were advised to affix the correct postage. Two Club/Association Members submitted their ballot packages without signing the outer envelope; they were advised of this oversight and that they should request new ballot packages.
On May 19, 2015, the votes were tabulated and the amendment passed, receiving 63.5 percent of the residents' votes. That same day, the Association recorded the First Amendment to the CC & Rs. The First Amendment provides that the Proprietary Fee shall be “deposited into a separate trust account from which funds will be disbursed to The Club ... to cover maintenance expenses, including without limitation, a portion of The Club's landscaping costs, to assist in the financial viability of The Club.”
On November 17, 2015, several residents initiated the Asher Action, a civil action to challenge the validity of the First Amendment. (Asher v. Peters & Freedman, LLP, supra, E067159, and Asher v. The Morningside Community Association, supra, E067815.) On December 29, 2015, plaintiffs initiated this action challenging the validity of the First Amendment, along with the imposition of the assessment of $550.96 per lot to fund the defense of the Asher action. Based on information gained through discovery, plaintiffs amended their complaint on September 22, 2016, adding the Peters Defendants and additional causes of action against the Association and Zien, namely, restitution (tenth cause of action against Association only), negligence (eleventh cause of action against Association only), and breach of fiduciary duties for violation of election statutes (twelfth cause of action against Association and Zien).
On November 23, 2016, the Association Defendants moved to strike the causes of action in the first amended complaint (FAC) on the grounds that they arise from the Association Defendants' acts “in furtherance of their First Amendment rights in connection with the procedure and voting by members of the entire Morningside community that resulted in the adoption of the Proprietary Fee.” The trial court denied the anti-SLAPP motion, concluding that the plaintiffs' action did not arise from protected activity. The court observed that “not all activity is protected and there is a distinction between a suit arising from protected activity, and a suit that was prompted by protected activity. Only suits arising from protected activity are subject to an anti-SLAPP motion to strike. Here, the allegations in the FAC against [the Association] Defendants are that they conspired with the other defendants to rig the election.... Plaintiffs are not suing the [Association] Defendants because of ‘what’ was communicated in the letters (which would be protected activity), but rather because they took specific steps to influence the election.”
The trial court found that the Association Defendants failed to meet their burden of proving that plaintiffs' claims arose out of protected activity. The Association Defendants argue that their conduct falls under Code of Civil Procedure section 425.16, subdivision (e). As we explain, the trial court did not err in its decision because the claims in the FAC do not arise from constitutionally protected free speech or petitioning activities.
A. Anti-SLAPP Law.
“The anti-SLAPP statute does not insulate defendants from any liability for claims arising from the protected rights of petition or speech. It only provides a procedure for weeding out, at an early stage, meritless claims arising from protected activity. Resolution of an anti-SLAPP motion involves two steps. First, the defendant must establish that the challenged claim arises from activity protected by [Code of Civil Procedure] section 425.16. [Citation.]” (Baral v. Schnitt (2016) 1 Cal.5th 376, 384.) In determining whether a cause of action arises from protected activity “ ‘the critical consideration is whether the cause of action is based on the defendant's protected free speech or petitioning activity.’ ” (Department of Fair Employment & Housing v. 1105 Alta Loma Road Apartments, LLC (2007) 154 Cal.App.4th 1273, 1284.) To determine whether this requirement is met, we consider “the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.” (Code Civ. Proc., § 425.16, subd. (b)(2); see Equilon, supra, 29 Cal.4th at p. 67.)
Once the defendant has established that the challenged claim arises from protected activity, “the burden shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success. [The California Supreme Court has] described this second step as a ‘summary-judgment-like procedure.’ [Citation.]4 The court does not weigh evidence or resolve conflicting factual claims. Its inquiry is limited to whether the plaintiff has stated a legally sufficient claim and made a prima facie factual showing sufficient to sustain a favorable judgment. It accepts the plaintiff's evidence as true, and evaluates the defendant's showing only to determine if it defeats the plaintiff's claim as a matter of law. [Citation.] ‘[C]laims with the requisite minimal merit may proceed.’ [Citation.]” (Baral v. Schnitt, supra, 1 Cal.5th at pp. 384-385.)
We review an order granting or denying a motion to strike under Code of Civil Procedure section 425.16 de novo. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269, fn. 3.)
1. Plaintiffs' Allegations Do Not Arise from Protected Activity.
Under the first step of the anti-SLAPP analysis, the Association Defendants must show that (1) the FAC alleges protected speech or conduct, and (2) the relief is sought based on allegations arising from the protected activity. (Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1062-1063 (Park ).) We find that they fail to meet this burden.
Regarding the protected speech/conduct requirement, Code of Civil Procedure section 425.16, subdivision (e), provides that an “ ‘act in furtherance of a person's right of petition or free speech’ ” includes, as relevant here, “(3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.” Petitioning activity may include oral or written statements made and conduct taken at board meetings and elections of a homeowners association. (Lee v. Silveira (2016) 6 Cal.App.5th 527, 540-545; Damon v. Ocean Hills Journalism Club (2000) 85 Cal.App.4th 468, 475, 479 (Damon ).)
Regarding the “ ‘arising from’ requirement ( [Code Civ. Proc.,] § 425.16, subd. (b)(1) ), the defendant must show ‘the defendant's act underlying the plaintiff's cause of action [was] itself’ a protected act. [Citation.] ‘[T]he mere fact that an action was filed after protected activity took place does not mean the action arose from that activity for the purposes of the anti-SLAPP statute.’ [Citation.] Instead, the focus is on determining what ‘the defendant's activity [is] that gives rise to his or her asserted liability—and whether that activity constitutes protected speech or petitioning.’ [Citations.]” (Gaynor v. Bulen (2018) 19 Cal.App.5th 864, 877.)
In Park, supra, 2 Cal.5th at pages 1060-1062, the California Supreme Court decided that an assistant professor's action to recover damages for a university's denial of tenure due to national origin discrimination was not subject to an anti-SLAPP motion, despite the fact that there were several communications by the defendants that led up to the challenged decision. The Supreme Court explained the “arising from” requirement, stressing the need for courts to decide whether the protected activity was the alleged injury-producing act that established the basis for the plaintiff's claim. (Park, supra, at pp. 1062-1063.) The Supreme Court stated that to satisfy the “arising from” requirement, the defendant must show that his or her conduct by which plaintiff claims to have been injured meets the statutory definition of protected activity, and “in ruling on an anti-SLAPP motion, courts should consider the elements of the challenged claim and what actions by the defendant supply those elements and consequently form the basis for liability.” (Id. at p. 1063.) In short, courts must distinguish between “activities that form the basis for a claim and those that merely lead to the liability-creating activity or provide evidentiary support for the claim.” (Id. at p. 1064.)
To illustrate its point, the Park court compared two of its prior decisions, City of Cotati v. Cashman (2002) 29 Cal.4th 69 (City of Cotati ), and Navellier v. Sletten (2002) 29 Cal.4th 82 (Navellier ). (Park, supra, 2 Cal.5th at p. 1063.) In City of Cotati, a city initiated an action against the owners of mobilehome parks seeking a declaratory judgment that its rent control ordinance was constitutional. (City of Cotati, supra, at p. 72.) The city's suit was filed after the defendant owners brought a federal suit seeking declaratory relief invalidating the same ordinance. (Ibid.) In the state action, the defendant owners filed an anti-SLAPP motion alleging the city's claim arose from their protected activity of filing the federal suit. (City of Cotati, supra, at pp. 72-73.) The Supreme Court disagreed, explaining that since the constitutionality of the ordinance was the underlying dispute between the parties and the primary controversy in the city's state action, the city's claim did not arise from the owners' federal suit. (Id. at p. 80.)
“In contrast, in [Navellier ], another case in which the defendant's protected activity was the prior filing of court claims, the prior claims were an essential part of the activity allegedly giving rise to liability. The Navellier plaintiffs sued for breach of contract and fraud, alleging the defendant had signed a release of claims without any intent to be bound by it and then violated the release by filing counterclaims in a pending action in contravention of the release's terms. Unlike in City of Cotati, the defendant was ‘being sued because of the affirmative counterclaims he filed in federal court. In fact, but for the federal lawsuit and [the defendant's] alleged actions taken in connection with that litigation, plaintiffs' present claims would have no basis. This action therefore falls squarely within the ambit of the anti-SLAPP statute's “arising from” prong.’ [Citation.]” (Park, supra, 2 Cal.5th at p. 1063.)
The Park court recognized that both City of Cotati and Navellier presented a situation wherein “the claim challenged as a SLAPP was filed because of protected activity,” but pointed out that only one case, Navellier, involved a situation where the prior protected activity supplied the “elements of the challenged claim.” (Park, supra, 2 Cal.5th at p. 1064.) Thus, the Supreme Court emphasized the need “to respect the distinction between activities that form the basis for a claim and those that merely lead to the liability-creating activity or provide evidentiary support for the claim.” (Ibid.; see San Ramon Valley Fire Protection Dist. v. Contra Costa County Employees' Retirement Assn. (2004) 125 Cal.App.4th 343, 353-354, [the mere fact an action was filed after protected activity took place does not mean it arose from that activity; rather, the anti-SLAPP statute's definitional focus is on whether the defendant's activity giving rise to his or her asserted liability constitutes protected speech, petitioning or conduct]; see also Foothills Townhome Assn. v. Christiansen (1998) 65 Cal.App.4th 688, 695-696 [motion to strike denied where a private homeowners association sued a member to collect an assessment despite finding that the member's “alleged activities involved matters of sufficient public interest made in a sufficiently public forum to invoke the protection of [Code of Civil Procedure] section 425.16”], disapproved on other grounds in Equilon, supra, 29 Cal.4th at p. 58.)
Here, the FAC alleges causes of action for restitution, negligence, and breach of fiduciary duty/good faith regarding the election laws against the Association Defendants.5 These causes of action arise out of two types of conduct on the defendants' part.6 First, the FAC alleges wrongdoing by defendants based on the statements and representations they made in supporting and advocating for an amendment to the CC & Rs to include a $250 monthly assessment which would be paid only by non-Club members for the benefit of Club members. Second, the FAC alleges that the defendants schemed and conspired to access confidential voter information in order to manipulate the outcome of the election.
Although the conduct of the Association Defendants at the Association's board meetings and the election regarding the Proprietary Fee encompasses protected activity, it is not the protected activity from which plaintiffs' claims arise. The alleged representations and actions were not about the Proprietary Fee or anyone encouraging a member to get out and vote, but about the tortious actions that defendants employed to ensure its implementation. We reject any effort to characterize all of defendants' activities (discussing, resolving, communicating the need for the Proprietary Fee, and contacting members regarding the election) as protected speech or conduct because they involve the governance of the Association and the Association Defendants' right to solicit members' votes. The fact that the Association Defendants' representations to members may have been made in public forums in which they sought to garner the support of the members, and may have been of interest to a particular community, does not convert all of their statements into acts “ ‘in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue.’ ” (Code Civ. Proc., § 425.16, subd. (e).) Were we to accept such argument, every lawsuit concerning a private organization's business practices could be described broadly as involving “governing conduct” and would be barred under the anti-SLAPP statute, resulting in an evisceration of tort and the unfair business practices laws. (Jewett v. Capital One Bank (2003) 113 Cal.App.4th 805, 815.)
Similarly, the Association Defendants' alleged misconduct surrounding the election on the Proprietary Fee may not be grouped with legitimate protected activity simply because the “entire process regarding the Proprietary Fee—from concept to vote—unquestionably concerns activity in a public forum and concerns a matter of public interest implicating [Code of Civil Procedure] Sections 425.16[,] [subdivisions] (e)(3) and (4).” Nor is such result dictated by the case law cited by the Association Defendants involving the issue of when conduct involves the “public issue.” (See Damon, supra, 85 Cal.App.4th at pp. 479-480.)
In Damon, members of a homeowners association criticized their general manager at the association's meetings and in the association's newsletter. (Id. at p. 472.) After the manager was no longer employed by the association, he filed a defamation complaint against the association, certain board members, and homeowners who had criticized his performance. (Id. at p. 473.) Defendants successfully moved to strike the complaint under the anti-SLAPP statute, and the decision was affirmed on appeal. The appellate court held that a homeowners association newsletter was a public forum for purposes of [Code of Civil Procedure] section 425.16, because it was “a vehicle for open discussion of public issues and was widely distributed to all interested parties ....” (Damon, supra, at p. 478.) Additionally, the court found that statements made at the association's meeting addressed a matter of public concern because they involved the manager's competency to manage the association. (Id. at p. 479.) This is not the same situation. Again, the FAC is concerned with the alleged misrepresentations and tortious actions taken by the defendants to insure the implementation of the Proprietary Fee, it is not concerned with political or noncommercial speech. We look to the “pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based” (Code Civ. Proc., § 425.16, subd. (b)(2); see Equilon, supra, 29 Cal.4th at p. 67) when determining whether plaintiffs' claims “arise from” protected activity. Here, the pleadings and the affidavits allege a conflict of interest on the part of each Association director who was also a member of the Club, misrepresentations regarding the necessity of a permanent $250 monthly assessment solely for the benefit of the Club, and disclosure of secret election information to manipulate election results. “In short the allegations, if proved, render this case not about protected activity but unprotected duplicity.” (World Financial Group, Inc. v. HBW Ins. & Financial Services, Inc. (2009) 172 Cal.App.4th 1561, 1573.) The anti-SLAPP motion therefore was properly denied.
2. The Plaintiffs Have Demonstrated a Minimum Probability of Prevailing on Their Claims.
Because we conclude that the Association Defendants did not meet their initial burden of establishing that the FAC “arises from” protected activity, we are not required to consider whether plaintiffs met their burden of establishing a probability of success on the merits. Nonetheless, as an alternative ground for our conclusion, we discuss the second prong of the anti-SLAPP analysis.
In order to show a probability of prevailing, plaintiffs must demonstrate that their causes of action have a “ ‘ “minimum level of legal sufficiency and triability,” ’ ” i.e., “ ‘ “minimal merit.” ’ ” (Lanz v. Goldstone (2015) 243 Cal.App.4th 441, 457.) “ ‘ “As is true with summary judgment motions, the issues in an anti-SLAPP motion are framed by the pleadings. [Citation.] The plaintiff may not rely solely on its complaint, even if verified; instead, its proof must be made upon competent admissible evidence. [Citation.] In reviewing the plaintiff's evidence, the court does not weigh it; rather, it simply determines whether the plaintiff has made a prima facie showing of facts necessary to establish its claim at trial. [Citation.]” [Citation.]’ [Citation.] ‘When reviewing a ruling on a defendant's [Code of Civil Procedure] section 425.16 special motion to strike a complaint, we employ our independent judgment.’ [Citation.]” (Oviedo v. Windsor Twelve Properties, LLC (2012) 212 Cal.App.4th 97, 109.) Applying this step, we conclude that plaintiffs have established the merits of their claims.
a. Further background facts.
The FAC identifies a number of acts of alleged misconduct surrounding the election on the Proprietary Fee. The acts of the alleged misconduct were exposed through discovery. The following was revealed:
On April 22, 2015, Christopher Norman (an Association director and Club member) sent an email message to Michele Abdelnour (general manager of the Association), Randy Zien (an Association director and Club member), and Greg Harris (general manager of the Club), stating the following: “I just spoke with Dave Peters. Because I asked him for the list of who has voted he is sending it to me. If someone else asks him for it he will send it to them. Let's keep this absolutely between the four of us. Michele, you won't need to see it and I know you won't mention it. I will get it over to Greg and Randy as soon as I receive it. Greg, you will have to just ask people to call certain members without telling them you know they haven't voted.” On April 23, 2015, Mr. Harris asked Ms. Abdelnour to send a replacement ballot to Ray Yates, one of the members who did not sign his ballot.
On April 28, 2015, Mr. Harris emailed Rusty Goepel and Richard Cantlin (both Association members and Club governing board members), Randy Zien, Christopher Norman, and Shelley Tratch (Zien's spouse) attaching an “updated spread sheet with votes received as of yesterday [April 27, 2015].” He stated, “We have received 216 votes with 122 Yes votes, 86 no votes and 8 member votes that we are not sure of. That is a 56.5% yes rate which is too close for comfort!”
On May 1, 2015, Mr. Harris emailed Messrs. Goepel, Cantlin and Norman updated information on the vote count. He stated: “Attached is the updated vote tracker as of today. There are now 266 ballots in with 157 yes votes and 2 yes votes that were not signed. 97 no votes. We are now at 59% yes votes of those sent back and need another 23 yes votes to pass the measure. There are 43 members who are ‘yesses’ whose ballots have not been received, 7 non-members or new members who have indicated they will vote yes and 14 members who are on the fence. The votes are there ... we just need to go get them! WE are getting close.” (Original capitalization.) Mr. Harris sent further updates on May 6, May 8, May 13, and May 15, 2015. In the May 13, 2015, update, Mr. Harris stated: “We still do not have the replacement ballots for Mr. Rosen and Stein so I will call them both tomorrow.” In the May 15, 2015, update, Mr. Harris stated, “Mr. Goepel. I tried Mr. Stein twice yesterday and did not get a response. He seemed to respond promptly to your emails. Would you mind sending him another note reminding him that he did not sign his first ballot and needs to send the second one in? The Rotner's [sic ] are contacting Mr. Rosen.”
On May 22, 2015, Mr. Peters, inspector of the election, reported that the votes were counted and the ballots were tabulated on May 19, 2015, at 9:00 a.m.
Our analysis is confined to the causes of action for negligence and breach of fiduciary duty/good faith regarding the election laws, which we consider together, as they are based on the defendants' allegedly tortious conduct in seeking, supporting, and insuring passage (via manipulation of the election) of the amendment to the CC & Rs to include Proprietary Fee. If we conclude that plaintiffs have demonstrated a probability of prevailing on the merits of their claims for negligence (Association) and breach of fiduciary duty/good faith regarding the election laws (Association and Zien), then it follows that they have also demonstrated a probability of prevailing on their claim for restitution (Association).
The elements of a cause of action for negligence are: (1) the existence of the duty; (2) breach of that duty; (3) a causal connection between the negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the negligence. (Tribeca Companies, LLC v. First American Title Ins. Co. (2015) 239 Cal.App.4th 1088, 1114.) The elements of a cause of action for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) breach of fiduciary duty, and (3) damage proximately caused by the breach. (Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1509.)
Regarding the negligence and breach of fiduciary duties causes of action, the FAC alleges that the Association and Zien had duties of trust and good faith that required them to carry out the election with the highest degree of impartiality so as to ensure that it was conducted fairly in accordance with all applicable election laws, including those set forth in the Davis-Stirling Common Interest Development Act (the Act), Civil Code sections 4000 and 5100, et seq.
The Act's election provisions govern, inter alia, the “election regarding assessments legally requiring a vote.” (Civ. Code, § 5100, subd. (a).) They require homeowners associations to select one or three “independent third party or parties as an inspector of elections.” (Civ. Code, § 5110, subd. (a).) An independent third party “may not be a person, business entity, or subdivision of a business entity who is currently employed or under contract to the association for any compensable services unless expressly authorized by rules of the association ....” (Civ. Code, § 5110, subd. (b).) The inspectors of elections shall, among other duties, “[c]ount and tabulate all votes” (id., subd. (c)(5) ); “[d]etermine the tabulated results of the election” (id., subd. (c)(7) ); “[p]erform any acts as may be proper to conduct the election with fairness to all members” (id., subd. (c)(8) ); and “perform all duties impartially, in good faith, to the best of the inspector of election's ability ....” (Id., subd. (d).)
The statutes set forth specific procedures for ensuring the secrecy of ballots, provide that ballot counting be conducted in public, and specify who shall retain custody of the sealed ballots until after the tabulation of the vote. (Civ. Code, §§ 5115, 5120, 5125; see also Elec. Code, §§ 3000-3026.) More precisely, “[n]o person, including a member of the association or an employee of the management company, shall open or otherwise review any ballot prior to the time and place at which the ballots are counted and tabulated. The inspector of elections, or the designee of the inspector of elections, may verify the member's information and signature on the outer envelope prior to the meeting at which ballots are tabulated. Once a secret ballot is received by the inspector of elections, it shall be irrevocable.” (Civ. Code, § 5120, subd. (a), italics added.) An association member may initiate a civil action for a violation of the Act, and if the action is successful, a court may void the election results. (Civ. Code, § 5145, subd. (a).)
For purposes of reviewing the ruling on an anti-SLAPP motion, it is enough to focus on one act of alleged misconduct surrounding the election on the Proprietary Fee. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) The Association Defendants owe fiduciary and common law duties of care to the Association's members. (Ostayan v. Nordhoff Townhomes Homeowners Assn., Inc. (2003) 110 Cal.App.4th 120, 126-127.) As previously explained, “[n]o person ... shall open or otherwise review any ballot prior to the time and place at which the ballots are counted and tabulated .... Once a secret ballot is received by the inspector of elections, it shall be irrevocable.” (Civ. Code, § 5120, subd. (a), italics added.) Here, the Association Defendants may not have personally opened, or otherwise reviewed, the Proprietary Fee election ballot packages prior to the date and time at which they were to be counted and tabulated; however, they requested voting information, were provided this information, and used this information, prior to the date and time designated for counting and tabulating, with the intent of affecting the outcome of the election to insure the passage of the Proprietary Fee. In short, defendants invaded the sanctity of a voting process designed to prevent voter fraud.
The FAC alleges that the actions by the Association Defendants constitute a violation of the provisions of the Act. To support this allegation, plaintiffs offered the email exchanges between the Association Defendants and the Club Defendants, which evidence their knowledge of the vote count, unsigned ballot packages, and actions they took to increase the number of votes in favor of passing the Proprietary Fee. Norman's April 22, 2015, email: “I just spoke with Dave Peters. Because I asked him for the list of who has voted he is sending it to me. If someone else asks him for it he will send it to them. Let's keep this absolutely between the four of us. Michele, you won't need to see it and I know you won't mention it. I will get it over to Greg and Randy as soon as I receive it. Greg, you will have to just ask people to call certain members without telling them you know they haven't voted.” Considering these undisputed communications (detailed previously), and the contents therein, it is reasonable to infer that the Association Defendants violated the Act, and intentionally suppressed the evidence regarding their secret actions to affect the election's outcome. Based on this showing, we conclude that plaintiffs have demonstrated a probability of prevailing on their causes of action.
The Association Defendants offer a number of arguments as to why the causes of action are neither legally nor factually sufficient, but most of them fail to address the use of confidential voter information, and none is persuasive.
The Association Defendants contend that plaintiffs are unable to show a probability of prevailing because their decision is “protected by the business judgment rule of Corporations Code section 7231.” They argue that they acted in good faith and in the best interests of the Association. However, under the business judgment rule, “ ‘a director is not liable for a mistake in business judgment which is made in good faith and in what he or she believes to be in the best interests of the corporation, where no conflict of interest exists.’ [Citations.]” (Palm Springs Villas II Homeowners Assn. Inc. v. Parth (2016) 248 Cal.App.4th 268, 279.) Here, the evidence strongly suggests a conflict of interest: According to the Association Defendants, the Proprietary Fee (to be disbursed to the Club) was necessary to “ ‘assist it in maintaining landscaping standards and for the strength of the Community to protect property values.” However, defendants, specifically Zien, knew that 58 percent of the residents (those who were also members of the Club) would not face an increase in their monthly expenses in the amount of the Proprietary Fee because they would receive a credit in Club dues in the same amount, and that the Club had “run at a small operating profit for the past five years.” Because Zien was a Club member who stood to benefit economically from the imposition of the Proprietary Fee, he had a direct financial conflict of interest. According to Goepel, the Club required additional income to place it on “a stable financial footing” and raising Club dues would “drive existing members away and further exacerbate the Club's financial difficulties.”
Moreover, it appears that the Association Defendants violated Civil Code section 5600, subdivision (b), which provides: “An association shall not impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.” The reduction of Club dues for homeowners by $250 per month, at the same time homeowners' monthly assessments increased by $250, means that instead of 100 percent of the Morningside residences facing a monthly increase in their expenses of $250, only 42 percent of the Morningside residents faced this increase. In other words, Association members of Morningside Community would be required to pay an additional $3,000 per year in assessments, while Club/Association members would pay no additional amount but would benefit from an additional $459,000 revenue to the Club which is for their exclusive use.
Finally, we conclude that plaintiffs have set forth a prima facie case of actual injury and entitlement to relief and damages. Plaintiffs have made a prima facie case that the election that approved the Proprietary Fee is invalid, that plaintiffs are entitled to a refund of all sums paid in connection with the Proprietary Fee, and that plaintiffs were compelled to retain legal counsel to protect their rights.
The trial court's ruling is affirmed. Plaintiffs are awarded costs on appeal.
1. “SLAPP” is an acronym for “strategic lawsuit against public participation.” (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 57 (Equilon ).
2. This is the second of three appeals in this case. We take judicial notice of Wright v. Peters & Freedman, LLP, case No. E067366, involving the first appeal, and Wright v. The Club at Morningside, case No. E067980, involving the third appeal. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).) We also take judicial notice of Asher v. Peters & Freedman, LLP, case No. E067159, and Asher v. The Morningside Community Association, case No. E067815, two appeals from a related case, Asher et al., v. The Morningside Community Association et al., Riverside Superior Court No. PSC1505335 (the Asher Action).
3. During oral argument, the Peters Defendants pointed out that the homeowners received ballot packages, consisting of an envelope within an envelope. The inside envelope, which contained the actual ballot with no identifying information, was placed inside the outside envelope, which required the voters' identity information and signature.
4. “Anti-SLAPP motions differ from summary judgment motions in that they are brought at an early stage of the litigation, ordinarily within 60 days after the complaint is served. ( [Code Civ. Proc.,] § 425.16, subd. (f).) Discovery is stayed, absent permission from the court. ( [Code Civ. Proc.,] § 425.16, subd. (g).) Thus, the defendant may test the sufficiency of the plaintiff's claims before incurring the costs and disruptions of ordinary pretrial proceedings.”
5. The Association Defendants moved to strike the FAC in its entirety, despite the fact that the FAC includes the same eight causes of action (breach of fiduciary duty/conflict of interest, violations of the Davis-Sterling Act, fraud/deceit, negligence, conspiracy, intentional infliction of emotional distress, injunctive relief, and declaratory relief) alleged against them in the original complaint. However, as to those eight causes of action, their anti-SLAPP motion is untimely because it was filed more than 60 days after service of the original complaint. (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2018) 4 Cal.5th 637, 640, 645-646 [a defendant must move to strike a cause of action within 60 days of service of the earliest complaint that contains that cause of action; however, an “ ‘amended complaint reopens the time to file an anti-SLAPP motion without court permission only if the amended complaint pleads new causes of action that could not have been the target of a prior anti-SLAPP motion, or adds new allegations that make previously pleaded causes of action subject to an anti-SLAPP motion’ ”]; see Code Civ. Proc., § 425.16, subd. (f).) Our analysis therefore addresses only those causes of action newly alleged in the FAC. However, to the extent the eight causes of actions originally alleged include new allegations of election-related communications, we will address them if we find merit in the Morningside Defendants' arguments as to the new causes of action based on election-related communications.
6. The FAC alleges a conspiracy between the defendants regarding the actions taken to amend the CC & Rs to add the Proprietary Fee. Because such actions encompass those leading up to, and including, the election regarding the Proprietary Fee, we consider the conduct of all defendants, not just the Association Defendants, in determining whether the claims asserted in the FAC against the Association Defendants arise from protected activity.