Ostayan v. Nordhoff Townhomes Homeowners

• Decision Date: 03 July 2003
• Docket Number: No. B159242.,B159242.
• Court: California Court of Appeals Court of Appeals
• Parties: Sam OSTAYAN, Plaintiff and Appellant, v. NORDHOFF TOWNHOMES HOMEOWNERS ASSOCIATION, INC., Defendant and Respondent.

1 Cal.Rptr.3d 528

110 Cal.App.4th 120

Sam OSTAYAN, Plaintiff and Appellant, v. NORDHOFF TOWNHOMES HOMEOWNERS ASSOCIATION, INC., Defendant and Respondent.

No. B159242.

Court of Appeal, Second District, Division 5.

July 3, 2003.

Ezer Williamson & Brown and Mitchel J. Ezer, Los Angeles, for Plaintiff and Appellant.

Beach, Procter, McCarthy & Slaughter, William M. Slaughter and Sean D. Cowdrey, Ventura, for Defendant and Respondent.

MOSK, J.

Defendant Nordhoff Townhomes Homeowners Association, Inc. (the Association) obtained summary judgment in the trial court on a complaint alleging (1) that the Association had been negligent and had breached its fiduciary duty to former Association member and plaintiff Sam Ostayan (Ostayan) and (2) a constructive trust of a portion of the funds received by the Association in a lawsuit against its insurance carrier. Ostayan claims he is entitled to a share of the litigation settlement proceeds received by the Association after Ostayan sold his condominium because he had not been informed of the litigation prior to the sale. Seeking reversal of the summary judgment, Ostayan contends that the trial court erred in concluding that the Association did not have a duty to notify its members that it had filed litigation against its insurance carrier. He further contends that summary judgment was erroneously granted because he raised a triable issue of material fact as to whether the Association notified its members of the lawsuit within a reasonable time. We hold that the Association had no duty to notify its members of the filing of the litigation and that even if the Association had any duty of notification, it complied with that duty. We therefore affirm.

FACTUAL AND PROCEDURAL BACKGROUND¹

The Northridge earthquake of January 17, 1994, damaged the complex of townhouses in North Hills owned by members of the Association. Ostayan purchased an uninhabitable unit, Unit 13, on June 11, 1997, from the Department of Housing and Urban Development for $25,000. Upon purchasing the townhouse, Ostayan became a member of the Association—a California nonprofit corporation—and paid monthly dues to it for the duration of his ownership of the townhouse. Ostayan never resided in the townhouse he purchased. He sold Unit 13 to Ismael and Maria Estrada (the Estradas) on July 22, 1998, for $53,500.

The Association was engaged in a dispute regarding earthquake damage with its insurance carrier for a period that included the time Ostayan owned Unit 13. The Association negotiated with the insurance carrier over several years to settle earthquake-related claims, and the dispute with the carrier was a frequent subject at meetings of the Association's board of directors.

Prior to filing of the suit against the insurer, the Association notified its members of the existence of the dispute with its insurer. In a notice dated July 14, 1997 to the homeowners in the complex, the Association wrote, "We have had some more meetings with Department of] W[ater and] P[ower] representatives and inspectors and with the insurance company, architect, engineer and adjuster and with our own engineer and legal representative regarding the electrical vault. DWP has ruled that the vault is definitely our responsibility. The cost to repair it is somewhere in the $100,000.00 neighborhood. We have asked our insurance carrier to cover the cost of repairs. Our representative has been pursuing the funds, but, as of the writing of this, the insurance company has not responded to us as to their intentions."

The Association sent its members a notice, dated September 15, 1997, and entitled, "Important Earthquake Repair Update," that referred to the possibility of legal action. The notice read, in pertinent part, "We on the executive committee of the Board want you to be aware that we are still fighting for the money the insurance company owes us from the claim. Should we have to take further legal action, we are prepared to do so. There seems to have been a miscalculation by the insurance company for which we have made a demand but, as yet, we have not received the funds. Also, we are demanding that they pay for the damaged electrical vault, but again they have been dragging their feet."

An October 23,1997 message to Association members noted, "The insurance company has, at this point, denied our request for the money which we feel they erroneously withheld. They also will not, at this time, entertain any requests for giving us our hold-back money. PCI [Project Control, Inc.] tells us that [the insurer] is famous for NEVER giving their insured the hold-back money, so we cannot count on it. [The insurer] has also been dragging their feet responding to our requests for them to assume the responsibility for the electrical vault. Our attorney is in hot pursuit of [the insurer] for this very expensive vault replacement."

Ostayan admitted receiving these three communications from the Association. Ultimately, the Association filed a bad faith insurance suit against the insurer on April 3, 1998. The Association notified its members of the filing of the litigation by notice dated July 29, 1998—one week after Ostayan had sold Unit 13 to the Estradas. In May 2000, the Association's lawsuit against the insurer was settled for $20 million. The Association later distributed the settlement funds to the then present members of the Association. The Estradas, the owners of Unit 13, received $180,000.

Ostayan filed the instant action, alleging claims for breach of fiduciary duty, negligence, and a constructive trust based on the Association's failure to give him notice of the filing of the litigation. The Association filed a motion for summary judgment on the ground that no duty existed to notify the members of the Association of the filing of the litigation. The trial court ruled that the Association had no duty to notify Ostayan of the filing of the lawsuit against the insurer and therefore granted summary judgment. Judgment was entered in the Association's favor, and this appeal followed.

DISCUSSION

I. Standard of Review

Summary judgment is granted when a moving party establishes the right to the entry of judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) In reviewing an order granting summary judgment, the appellate court independently determines whether, as a matter of law, the motion for summary judgment should have been granted. "The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843, 107 Cal. Rptr.2d 841, 24 P.3d 493 (Aguilar).)

A defendant moving for summary judgment meets its burden of showing that there is no merit to a cause of action if that party has shown that one or more elements of the cause of action cannot be established or that there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subd. (p)(2).) In order to obtain a summary judgment, "all that the defendant need do is to show that the plaintiff cannot establish at least one element of the cause of action..... Although he remains free to do so, the defendant need not himself conclusively negate any such element. ..." (Aguilar, supra, 25 Cal.4th at p. 853, 107 Cal.Rptr.2d 841, 24 P.3d 493.)

Once the defendant has made such a showing, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or as to a defense to the cause of action. (Aguilar, supra, 25 Cal.4th at p 849, 107 Cal.Rptr.2d 841, 24 P.3d 493; Code Civ. Proc., § 437c, subd. (p)(2).) If the plaintiff does not make this showing, summary judgment in favor of the defendant is appropriate.

II. Claims

Ostayan's complaint alleged causes of action for both breach of fiduciary duty and negligence. In the negligence cause of action, Ostayan alleged that the Association owed him a duty to inform him of the filing of the insurance litigation because he was a member of the Association and because the action was filed "for plaintiffs benefit as one of the Association's member/owners." The gravamen of the negligence claim was the Association's alleged fiduciary duty—not an independent duty arising under general negligence principles. Ostayan confirmed that his negligence claim was premised on the theory of the Association's fiduciary duty by arguing to the trial court that "the `duty' element of negligence is established as a matter of law by the fiduciary relationship between the Association and its members." Ostayan's constructive trust claim similarly was based upon the violation of the Association's alleged fiduciary duty to him. Because Ostayan's claims are based on the allegation that the Association owed Ostayan a fiduciary duty to disclose the filing of the litigation against the Association's insurer and because the operative complaint does not allege other potential causes of action, we address only whether there was a fiduciary duty to disclose this information, the issue framed by Ostayan's pleadings. (Schoendorf v. U.D. Registry, Inc. (2002) 97 Cal.App.4th 227, 236, 118 Cal. Rptr.2d 313 [the pleadings frame the issues to be decided on summary judgment]; Aguilar, supra, 25 Cal.4th at p. 844, 107 Cal.Rptr.2d 841, 24 P.3d 493 [summary judgment to be granted upon a showing "that there is no issue requiring a trial as to any fact that is necessary under the pleadings, and, ultimately, the law"].)

III. Applicable Provisions

A condominium complex is classified as a common interest development under California law. (Civ.Code, § 1351, subds.(c)(2), (f).) Civil Code section 1363, subdivision (a) provides that "A common interest development shall be managed by an association which may be incorporated or unincorporated." This association is often referred to as a "community...