Lamden v. La Jolla Shores Clubdominium Homeowners Assn.

• Citation: 21 Cal.4th 249,980 P.2d 940,87 Cal.Rptr.2d 237
• Decision Date: 09 August 1999
• Docket Number: No. S070296,S070296
• Court: United States State Supreme Court (California)
• Parties: , 980 P.2d 940, 99 Cal. Daily Op. Serv. 6358, 1999 Daily Journal D.A.R. 8073 Gertrude M. LAMDEN, Plaintiff and Appellant, v. LA JOLLA SHORES CLUBDOMINIUM HOMEOWNERS ASSN., Defendant and Respondent

Page 237

87 Cal.Rptr.2d 237

21 Cal.4th 249, 980 P.2d 940, 99 Cal. Daily Op. Serv. 6358,

1999 Daily Journal D.A.R. 8073

Gertrude M. LAMDEN, Plaintiff and Appellant, v. LA JOLLA SHORES CLUBDOMINIUM HOMEOWNERS ASSN., Defendant and Respondent.

No. S070296.

Supreme Court of California

Aug. 9, 1999.

Robert H. Lynn, San Diego, for Plaintiff and Appellant.

Mayfield & Associates and Gayle J. Mayfield, Solana Beach, for Common Interest Consumer Project as Amicus Curiae on behalf of Plaintiff and Appellant.

Robie & Matthai, James R. Robie, Kyle Kveton, Pamela E. Dunn, Claudia M. Sokol, Los Angeles, and Daniel J. Koes, for Defendant and Respondent.

Weintraub Genshlea & Sproul, Curtis C. Sproul, Sacramento; Farmer, Weber & Case, John T. Farmer, Kimberly F. Rich, San Diego; Even, Crandall, Wade, Lowe & Gates, Edwin B. Brown, Irvine; Peters & Freedman, Simon J. Freedman, Encinitas, and James R. McCormick, Jr., as Amici Curiae on behalf of Defendant and Respondent.

Hazel & Thomas, Michael A. Banzhaf, Leesburg, VA, Robert M. Diamond and Michael S. Dingman, Falls Church, VA, for Community Associations Institute as Amicus Curiae on behalf of Defendant and Respondent.

Early, Maslach, Price & Baukol, Los Angeles, and Priscilla F. Slocum, for Truck Insurance Exchange as Amicus Curiae on behalf of Defendant and Respondent.

Martin, Wilson & MacDowell, Scott A. Martin, John R. MacDowell and Steven S. Wang, Santa Ana, for Desert Falls Homeowners Association and Upland Hills Country Club Condominium Association as Amici Curiae on behalf of Defendant and Respondent.

June Babiracki Barlow and Neil D. Kalin, Los Angeles, for California Association of Realtors as Amicus Curiae on behalf of Defendant and Respondent.

WERDEGAR, J.

A building in a condominium development suffered from termite infestation. The board of directors of the development's community association ¹ decided to treat the infestation locally ("spot treat"), rather than fumigate. Alleging the board's decision diminished the value of her unit, the owner of a condominium in the development sued the community association. In adjudicating her claims, under what standard should a court evaluate the board's decision?

As will appear, we conclude as follows: Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development's common areas, courts should defer to the board's authority and presumed expertise. Thus, we adopt today for California courts a rule of judicial deference to community association board decisionmaking that applies, regardless of an association's corporate status, when owners in common interest developments seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations' boards of directors. (Cf. Levandusky v. One Fifth Avenue Apartment Corp. (1990) 75 N.Y.2d 530, 537-538, 554 N.Y.S.2d 807, 553 N.E.2d 1317, 1321 [analogizing a similarly deferential rule to the common law "business judgment rule"].)

Accordingly, we reverse the judgment of the Court of Appeal.

BACKGROUND

Plaintiff Gertrude M. Lamden owns a condominium unit in one of three buildings comprising the La Jolla Shores Clubdominium condominium development (Development). ² Over some years, the Board of Governors (Board) of defendant La Jolla Shores Clubdominium Homeowners Association (Association), an unincorporated community association, elected to spot treat (secondary treatment), rather than fumigate (primary treatment), for termites the building in which Lamden's unit is located (Building Three).

In the late 1980's, attempting to remedy water intrusion and mildew damage, the Association hired a contractor to renovate exterior siding on all three buildings in the Development. The contractor replaced the siding on the southern exposure of Building Three and removed damaged drywall and framing. Where the contractor encountered termites, a termite extermination company provided spot treatment and replaced damaged material.

Lamden remodeled the interior of her condominium in 1990. At that time, the Association's manager arranged for a termite extermination company to spot treat areas where Lamden had encountered termites.

The following year, both Lamden and the Association obtained termite inspection reports recommending fumigation, but the Association's Board decided against that approach. As the Court of Appeal explained, the Board based its decision not to fumigate on concerns about the cost of fumigation, logistical problems with temporarily relocating residents, concern that fumigation residue could affect residents' health and safety, awareness that upcoming walkway renovations would include replacement of damaged areas, pet moving expenses, anticipated breakage by the termite company, lost rental income and the likelihood that termite infestation would recur even if primary treatment were utilized. The Board decided to continue to rely on secondary treatment until a more widespread problem was demonstrated.

In 1991 and 1992, the Association engaged a company to repair water intrusion damage to four units in Building Three. The company removed siding in the balcony area, repaired and waterproofed the decks, and repaired joints between the decks and the walls of the units. The siding of the unit below Lamden's and one of its walls were repaired. Where termite infestation or damage became apparent during this project, spot treatment was applied and damaged material removed.

In 1993 and 1994, the Association commissioned major renovation of the Development's walkway system, underpinnings of which had suffered water and termite damage. The $1.6 million walkway project was monitored by a structural engineer and an on-site architect.

In 1994, Lamden brought this action for damages, an injunction and declaratory relief. She purported to state numerous causes of action based on the Association's refusal to fumigate for termites, naming as defendants certain individual members of the Board as well as the Association. Her amended complaint included claims sounding in breach of contract (viz., the governing Declaration of Restrictions [Declaration] ), breach of fiduciary duty and negligence. She alleged that the Association, in opting for secondary over primary treatment, had breached Civil Code section 1364, subdivision (b)(1) ³ and the Lamden further alleged that, as a proximate result of the Association's breaching its responsibilities, she had suffered diminution in the value of her condominium unit, repair expenses, and fees and costs in connection with this litigation. She also alleged that the Association's continued breach had caused and would continue to cause her irreparable harm by damaging the structural integrity and soundness of her unit, and that she has no adequate remedy at law. At trial, Lamden waived any damages claims and dismissed with prejudice the individual defendants. Presently, she seeks only an injunction and declaratory relief.

Declaration ⁴ in failing adequately to repair, replace and maintain the common areas of the Development.

After both sides had presented evidence and argument, the trial court rendered findings related to the termite infestation affecting plaintiff's condominium unit, its causes, and the remedial steps taken by the Association. The trial court found there was "no question from all the evidence that Mrs. Lamden's unit ... has had a serious problem with termites." In fact, the trial court found, "The evidence ... was overwhelming that termites had been a problem over the past several years." The court concluded, however, that while "there may be active infestation" that would require "steps [to be] taken within the future years," there was no evidence that the condominium units were in imminent structural danger or "that these units are about to fall or something is about to happen."

The trial court also found that, "starting in the late '80's," the Association had arranged for "some work" addressing the termite problem to be done. Remedial and investigative work ordered by the Association included, according to the trial court, removal of siding to reveal the extent of damage, a "big project ... in the early '90's," and an architect's report on building design factors. According to the court, the Board "did at one point seriously consider" primary treatment; "they got a bid for this fumigation, and there was discussion." The court found that the Board also considered possible problems entailed by fumigation, including relocation costs, lost rent, concerns about pets and plants, human health issues and eventual termite reinfestation.

As to the causes of the Development's termite infestation, the trial court concluded that "the key problem came about from you might say a poor design" and resulting "water intrusion." In short, the trial court stated, "the real culprit is not so much the Board, but it's the poor design and the water damage that is conducive to bringing the termites in."

As to the Association's actions, the trial court stated, "the Board did take appropriate action." The court noted the Board "did come up with a plan," viz., to engage a pest control service to "come out and [spot] treat [termite infestation] when it was found." The trial judge opined he might, "from a personal relations standpoint," have acted sooner or differently under the circumstances than did the Association, but nevertheless concluded "the Board did have a rational basis for their decision to reject fumigation, and do ... what they did." Ultimately, the court gave judgment for the Association, applying what it called a "business judgment test." Lamden appealed.

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