2001 Laws
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2001 CHANGES IN THE LAW

STATUTES ENACTED IN 2001

AB 1700 Amends Civil Code Section 1375 (Calderon); becomes operative 7/1/2002. It tightens the meditative process for settling construction defect lawsuits.  Subcontractors and insurance companies would now be involved.  Insurance coverage information would be disclosed and subcontractors would receive meaningful notice of the proceedings and would be able to participate. Now, before an association files suit, it must serve upon the developer a "Notice of Commencement of Legal Proceeding," that the developer take specified action within 60 days of receipt of that notice, and that the parties meet and confer in an effort to select a dispute resolution facilitator before suit is filed. The bill requires dispute resolution, as specified. Service of the notice commences a 180-day period during which the association and developer must attempt to resolve the dispute. The bill also specifies procedures for filing a complaint and amending claims.

SB 732, Toxic Mold Protection Act. Health & Safety Code Chapter 18 (commencing with Section 26100). This bill establishes a task force to report back to Congress by July 2003 on permissible exposure limits for mold in commercial and residential properties (indoors only), and standards for identification and remediation.  If feasible, the task force will adopt standards for permissible mold exposure limits and will report back on its progress by July 2003. This Act sets the toughest toxic mold standards in the nation.

AB 284 (Fungal Contamination). Health and Safety Code Chapter 19 (commencing with Section 26200). This Act does basically the same thing as SB 732, only for fungi and bacteria instead of mold.  The task force must report by January 1, 2003. Requires a comprehensive study of the health problems related to toxic mold by the California Research Bureau.

Federal Gramm-Leach-Bliley Act. This Act, which was enacted in 1999, came into effect July 1, 2001.  It affects banking institutions.  It requires banking institutions to allow its customers to “opt out” of any transmission of their private information to third parties and contains other privacy restrictions.  Unfortunately this will probably affect the ability of skip tracers and private investigators to locate individuals.  It may now become much harder to locate judgment debtors, for example.

CASES DECIDED IN 2001

Golden Gateway Center v. Golden Gateway Tenants Association (2001) 26 Cal.4th 1013. The tenants association in this large (1,254 units) security apartment complex distributed regularly newsletters, despite rules prohibiting solicitation within the complex. Held: The prohibition against soliciting is not a violation of the California Constitution or an unreasonable restraint on free speech.  Free speech restraints are only prohibited when they are the result of state action and there was no state action here.  There is only state action where the property is “freely and openly accessible to the public.”  

Moran v. Oso Valley Greenbelt Association (2001) 92 Cal.App.4th 156. Plaintiff requested to schedule a convenient time to review 10 years of minutes.  After many delays and miscommunications, the association demanded a $200 fee plus copying charges to provide the minutes to her. Held: The Board wrongfully withheld the minutes and cannot charge a fee greater than copying and postage costs incurred.  The appeals court remanded for the trial court to set an award of attorneys fees to plaintiff.

In the Matter of Daniel and Corey Roberts, FCC Memorandum Opinion and Order - CSR 5531-0. The tenant of a lot in a planned development installed an antenna for internet services, only, which was visible from outside the property in violation of the CC&Rs.  He did not show that he had the owner’s permission to install the antenna, so the Association refused to deal with him on the issue.  The company which sold and installed the dish presented a letter stating that the location was the only one which would give an acceptable signal. Held: The Association impermissibly delayed installation by requiring prior approval of antennas not hidden from view.  An occupant must be treated the same as an owner, even if the owner disapproves of the installation.

Boyer v. Jones (2001) 88 Cal.App.4th 220. The name of a suspended corporation may be reserved with the Secretary of State and used by another corporation.

Palm Valley Homeowners Association v. Design MTC (2001) 85 Cal.App.4th 553. Statute prohibits a corporation from filing a lawsuit if it has been suspended for failure to file a biannual informational statement with the state.  This case held that if the suspended corporation does file suit, its attorneys can be sanctioned for frivolous lawsuit if they participate in the litigation proceedings. Note: A homeowners association may be suspended for failure to file informational tax returns or a biannual (formerly annual) statement by domestic nonprofit corporation.  The corporation will probably not receive any notice that its status was suspended.

Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763. Plaintiff was attacked on the grounds of an apartment complex while she was attempting to deliver a package.  She sued the complex for failure to provide adequate security measures. The property had security gates but at least one was propped open at the time.  Plaintiff did not know whether her attackers were residents or visitors to the complex, or whether the propped-open gates were broken.  She submitted no evidence as to whether the apartment complex could have warned residents or visitors about unknown assailants frequenting the area.  The complex was in Bellflower in a high crime area with considerable gang area both in and around the complex.  The complex had hired security guards, which patrolled at night only and which made frequent attempts to repair broken locks and gates. Held: The complex is not liable.  There is a causation problem; plaintiff cannot show that if the complex had taken appropriate measures she would not have been attacked.  Arguing that more guards would have solved the problem is speculative, and the attackers may have been residents so if the gates were closed they still might have had access. 

Vu v. Prudential Property & Casualty Insurance Company (2001) 26 Cal. 4th 1141. Peter Vu filed a claim with Prudential after the Northridge earthquake for cracks in the walls and ceilings. An adjuster for Prudential inspected Vu's home and told him that the damage amounted to $3,962, far below the policy deductible of $30,000.  Nearly two years later, an appraiser hired by Vu estimated the earthquake damage to his home at more than $300,000.  There were cracks in the foundation and subfloor, and windows that were out of alignment. Held:  Insurance companies may be sued for failing to cover damage that their adjusters mistakenly overlooked, even if the one-year deadline for such a lawsuit has expired.  Insurers may be sued if their adjusters mistakenly underestimate damage; evidence of fraudulent misrepresentation is not required.  Policyholders must prove only that they did not file a lawsuit or second claim sooner because they "reasonably relied" on the insurance company's evaluation of the damage.

Lantzy v. Centex Homes (2001) 89 Cal.App.4th 1059. The ten-year statute of limitations for latent construction defects is tolled during periods of repair.  In this case, the developer was held to be “equitably estopped” from claiming the statute because of his repeated promises to repair the damages to homes at this homeowners association, which caused the association to delay filing suit. Note: The California Supreme Court has granted review of this case so this decision may be overturned.

Adelman v. Associated International Ins. Co. (2001) 90 Cal.App. 4th 352. The condominium association’s earthquake insurance policy insured against only common area damages, not build-outs or any other portion of the unit interiors.  The association sued its carrier for failure to pay for repairs and won a judgment in its favor.  Individual owners then sued the carrier for damages from delaying in making their unit repairs, claiming that the damage covered under the policy needed to be repaired first. Held: The insurance carrier held no duty of care to the individual owners, only to the association.

Committee to Save the Beverly Highlands Homes Association v. The Beverly Highlands Homes Association (2001) 92 Cal. App. 4th 1247. This homeowners association managed a project consisting of houses on separate lots.  There was no common area.  Two lots were reserved for planting, but they were not owned by the owners in common or by the Association.  The CC&Rs did not establish mutual easements across the owners’ lots, or across the two reserved lots.  The Association members voted to dissolve the homeowners association based on the Davis-Stirling Act. Held: The Davis-Stirling Act does not apply to this development.  In order to constitute a common interest development, there must be either common area or mutual easements for the benefit of all owners.  Therefore the vote on dissolving the corporation was valid, as the statutorily required member approval for dissolution is stricter for homeowners associations than for other corporations.

Hicks v. Kaufman and Broad Home Corp. (2001) 89 Cal.App.4th 908. Homeowners (not the homeowners association) sued the developer for cracked foundations in their homes.  The cracks were the result of an improper type of mesh being used in the construction.  The court allowed them to certify the suit as a class action even though some owners had not yet suffered cracks due to the improper mesh.  The court held that while Aas prohibited the owners from suing for negligence where there were not yet any damages, they could still bring suit against the developer for these damages based on claims of breach of express and implied warranties. These causes of action are available to the original purchasers, but may not be available to subsequent purchasers.  Also it is questionable whether a homeowners association could sue for these claims.

McClellan v. Northridge Park Townhome Owners Association, Inc. (2001) 89 Cal.App.4th 746. Peppertree North Condominium Association lost a suit with its contractor for payment of his $171,000 bill, then filed bankruptcy and created a new homeowners association to avoid payment.  The bankruptcy court dismissed the bankruptcy. Held: Plaintiff can have the bankruptcy dismissed and amend his judgment to include Northridge Park, the new homeowners association, as a judgment debtor.  As the two are essentially the same entity, Northridge Park is the successor corporation and can be held liable for the original corporation’s debt.  Also, the attempted transfer violated the CC&Rs, which prohibit transferring membership.

Saks v. Charity Mission Baptist Church (2001) 90 Cal.App.4th. A pastor and officer of a church corporation entered into a scheme with the plaintiff and a developer to purchase several parcels of real estate with loans or grants from the City of Los Angeles by using the church as a front.  The property was to be “purchased” by the church and then transferred to the real purchaser.  As part of the transaction, the pastor, on behalf of the church, signed promissory notes to the plaintiff which were never paid.  Plaintiff sued the church for payment. Held: Where an officer of a corporation is openly using the corporation to obtain a benefit for himself and his cohorts in a transaction, in which the corporation will ultimately not benefit, the other parties to the transaction cannot later seek to hold the corporation liable for the officer’s actions.

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