Berryman v. Merit Property Management, Inc.

• Decision Date: 31 May 2007
• Docket Number: No. G037156.,G037156.
• Citation: 152 Cal.App.4th 1544,62 Cal.Rptr.3d 177
• Court: California Court of Appeals Court of Appeals
• Parties: William J. BERRYMAN, as Trustee, etc., et al., Plaintiffs and Appellants, v. MERIT PROPERTY MANAGMENT, INC., Defendant and Respondent.

62 Cal.Rptr.3d 177

152 Cal.App.4th 1544

William J. BERRYMAN, as Trustee, etc., et al., Plaintiffs and Appellants, v. MERIT PROPERTY MANAGMENT, INC., Defendant and Respondent.

No. G037156.

Court of Appeal, Fourth District, Division 3.

May 31, 2007.

Bramson, Plutzik, Mahler & Birkhaeuser, Alan R. Plutzik, Jennifer S. Rosenberg, Walnut Creek; Reich Radcliffe, Marc G. Reich, Newport Beach; Law Offices of Kyle Crenshaw and Kyle Crenshaw, Newport Beach for Plaintiffs and Appellants.

Nossaman, Guthner, Knox & Elliott, Veronica M. Gray, Irvine, James C. Powers, Los Angeles, and Brad B. Grabske, Irvine, for Defendant and Respondent.

OPINION

MOORE, J.

Plaintiffs appeal from a judgment entered after the trial court sustained defendants' demurrer without leave to amend. Plaintiffs allege that defendant Merit Property Management, Inc., wrongfully charged certain fees in connection with the transfer of title for home purchases. We find the facts alleged fail to state a claim on which relief can be granted, and therefore the trial court properly sustained defendants' demurrer. Because plaintiffs have failed to demonstrate that further amendment will cure the complaint's deficiencies, the trial court did not abuse its discretion in denying further leave to amend, and we affirm.

I FACTS

Merit Property Management, Inc. (Merit) is in the business of managing residential common interest developments, typically known as homeowner associations (associations). Some homeowners belong to more than one association, because their home resides in both a "master" and "sub" association. Associations enter into written contracts with Merit to provide management services.

In April 2004, plaintiffs William J, Berryman and Betty C. Berryman, as trustees of the Berryman Family Trust (collectively plaintiffs or the Berrymans) sold a home located in two associations managed by Merit. They allege that Merit charged them $100 in document fees and $450 in transfer fees ($225 for each association), one-half of which was paid by the buyers. These fees were not remitted to the associations, but retained by Merit.

In March 2005, plaintiffs filed a putative class and representative action against Merit, several other entities that appear to be related, and Doe defendants. Alleging nine separate causes of action, the gravamen of the complaint was that Merit wrongfully charged homeowners such as the Berrymans' document and transfer fees upon the purchase or sale of their residence. Plaintiffs alleged these fees were in excess of those permitted by statute, specifically Civil Code section 1368 (subsequent statutory references, unless specified, are to the Civil Code.)

The complaint thus alleged Merit had violated section 1368 and was liable under any number of theories, including violation of Business and Professions Code section 17200, et seq. (the Unfair Competition Law or UCL), section 1750, et seq. (the Consumer Legal Remedies Act or CLRA), money had and received, breach of fiduciary duty and constructive fraud, negligence and negligence per se, and several equitable claims. Plaintiffs also sought class certification.

Merit filed a demurrer and motion to strike, but on the day before the hearing was set plaintiffs filed a first amended complaint. The first amended complaint again cited section 1368, asserting this limited the amount Merit could charge. The same nine causes of action were alleged. Merit again demurred and the trial court sustained the demurrer with leave to amend.

Plaintiffs then filed a second amended complaint (SAC), alleging the same nine causes of action. The gravamen of the complaint was also the same. With regard to the document fees, plaintiffs alleged that Merit routinely charged sellers for documents that had not been requested, regardless of whether Merit actually provided them. With regard to the transfer fees, plaintiffs alleged the fee of $225 per association was improper because it was not authorized by statute or by the contract between Merit and the association. Plaintiffs further alleged that Merit concealed the true nature and amount of these fees, both with regards to the homeowners to whom they were charged and to the associations.

Again Merit demurred, and this time the trial court sustained the demurrer without further leave to amend, entering judgment in Merit's favor on December 27, 2005. Plaintiffs filed a motion for reconsideration, attaching their proposed third amended complaint, which deleted all references to section 1368. The court denied reconsideration and entered an amended judgment in favor of Merit. Plaintiffs now appeal the court's ruling sustaining the demurrer to the SAC. They argue it properly states a cause of action, or in the alternative, that they should be permitted another opportunity to amend the complaint.

II DISCUSSION

A. Standard of Review

"In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) We review the trial court's decision de novo. (McCall v. PacifiCare of Cal, Inc. (2001) 25 Cal.4th 412, 415, 106 Cal.Rptr.2d 271, 21 P.3d 1189.)

B. The Underlying Statutory Scheme

The Davis-Stirling Common Interest Development Act (the Act) (§ 1350 et seq.) governs homeowner associations. The Act "consolidated the statutory law governing condominiums and other common interest developments.... Common interest developments are required to be managed by a homeowners association (§ 1363, subd. (a)), defined as `a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development' (§ 1351, subd. (a)), which homeowners are generally mandated to join [Citation.]" (Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 81, 14 Cal.Rptr.3d 67, 90 P.3d 1223, fn. omitted.)

Associations may hire managing agents to conduct day-to-day operations. (§§ 1363.1, 1363.2.) A managing agent is not a full-time employee of the association, but "is a person or entity who, for compensation or in expectation of compensation, exercises control over the assets of a common interest development." (§ 1363.1, subd. (b).)

One task that managing agents may perform is facilitating the transfer of ownership when a residence in an association is sold. A seller is required to provide rather extensive documentation regarding the association, and at the seller's request, the association must provide these documents to the seller within 10 days of a written request. (§ 1368, subds.(a), (b).) "The association may charge a reasonable fee for this service based upon the association's actual cost to procure, prepare, and reproduce the requested items." (§ 1368, subd. (b).)

With respect to the transfer of title, section 1368, subdivision (c)(1) states, in relevant part, that "neither an association nor a community service organization or similar entity may impose or collect any assessment, penalty, or fee in connection with a transfer of title or any other interest except for the following: [¶] (A) An amount not to exceed the association's actual costs to change its records...." In this case, plaintiffs are essentially arguing that Merit, like the "association" referred to in section 1368, cannot charge a fee greater than its actual cost to reproduce documents or to transfer title records.

C. The Brown Decision and Us Application

In 2005, this court decided Brown v. Professional Community Management, Inc. (2005) 127 Cal.App.4th 532, 25 Cal. Rptr.3d 617 (Brown). In that homeowner cross-complained against her association and its management company, alleging that the fees the management company charged for providing collection services to the association were illegal. The trial court had sustained the defendants' demurrer to Brown's complaint, which alleged that the fees violated section 1366.1, giving rise to claims under the CLRA and for negligence, among others. (Id. at p. 535, 25 Cal.Rptr.3d 617.)

The decision began by noting the language of section 1366.1, which states: "`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.' [Citation.]" (Brown, supra, 127 Cal.App.4th at p. 537, 25 Cal. Rptr.3d 617.) The court rejected Brown's argument that this restriction also applied to management companies: "The statute prohibits an `association' from charging fees or assessments in excess of the costs for which the fee or assessment is charged. As noted ante, an `association' is a defined term under the Act, and the definition requires the `association' to be a nonprofit entity. In contrast, the Act imposes separate duties on a managing agent. (See §§ 1363.1 & 1363.2.) And those statutory duties are owed to the `association' and its board of directors, not to individual owners of separate property interests in the common interest development. (§§ 1363.1 & 1363.2.) Significantly, the Act does not require a managing agent to be a nonprofit entity. It is clear, both from the definitions in the Act and...