Effective Representation Responsive to Our Clients' Needs

THE NEW AND IMPROVED DAVIS-STIRLING COMMON INTEREST DEVELOPMENT ACT (2013)

As is widely known, effective January 1, 2014, the new and improved Davis-Stirling Common Interest Development Act will replace the current one, which was first enacted in 1985 and has been evolving ever since then. The new legislation, Assembly Bill No. 805, primarily re organizes Davis-Stirling, making it more intuitive and user friendly. Instead of being found at Civil Code sections 1350 through 1378, the new Davis-Stirling statutes will be Civil Code sections 4000 through 6150. Associations need not be concerned about the change in section numbers because section 4235 of the new Davis-Stirling expressly permits the substitution of the new section numbers in governing documents simply by Board resolution, without approval of the members.

In addition to the re-organization, the new Davis-Stirling contains a few substantive changes, but they do not affect previous actions. Under new section 4010, an action taken or a document prepared (other than a governing document) before January 1, 2014 will remain valid if the document or action was proper under the old Davis-Stirling. The substantive changes are as follows (with the new section numbers in parentheses):  

A document required to be delivered to the Association must be delivered to the person designated by the Association. If no person has been designated, the document must be delivered to the President or Secretary. The permitted methods of delivery include electronic means (e.g., e-mail and facsimile) and personal delivery, if the association has assented to those methods. (4035)

The permitted methods for distributing documents to the membership include – in addition to the previously permitted methods of mail, overnight delivery, and electronic means if the recipient has consented in writing – ( 1 ) inclusion in a billing statement, newsletter, or other document that is delivered by one of the permitted methods; (2) posting the printed document in a designated, prominent location that is accessible to all members; or (3) inclusion in the association’s television programming. However, if a member requests to receive general notices by individual delivery, the document must be delivered by mail, overnight delivery, or electronic means if the member has given written consent to electronic delivery. (4045)

If there is any inconsistency between the law and the governing documents or between the various governing documents, the priority is in the following order: the law, then the Articles of Incorporation, then the CC&Rs, then the Bylaws, and then the operating rules. (4205) Although the old Davis-Stirling required that the operating rules be consistent with the other governing documents, it did not provide for priority amongst the other governing documents.

The written request to hold a special vote of the members on reversal of a rule change adopted by the Board can be delivered to the “association” and no longer need be delivered to the President or Secretary specifically. That vote must be held within 35 to 90 days after receipt of a proper request. (4365(b))

A new provision clarifies that limits imposed by Davis-Stirling on the regulation of the use of separate interests do not preempt or supersede any other statutory limits outside Davis-Stirling – e.g., Civil Code sections 712 and 713, relating to the display of signs; Civil Code sections 714 and 714.1 relating to solar energy systems; Civil Code section 714.5, relating to modular or pre-fabricated structures; Civil Code sections 782, 782.5, and 6150, relating to age restrictions; Government Code section 12956.1, relating to racial restrictions; Government Code section 12927, relating to disability accommodations; and Health and Safety Code section 1597.40, relating to family day care homes. (4700)

An Association may authorize the installation of an electric vehicle charging station in a common area, that is not an exclusive use common area, for the exclusive use of an owner only if installation in the owner’s designated parking space is impossible or unreasonably expensive. However, the Association or owners may install an electric vehicle charging station in the common area for the use of all members. An association also may create a new parking space where one did not previously exist to facilitate the installation of an electric vehicle charging station. (4745(g),(h),&(i))

The ballots from any election must be kept by the inspector(s) of election for a full year after the election, instead of the previously required nine months, before transferring them to the Association. (5125)

Many of the already required annual disclosures have been consolidated into an annual policy that must be distributed within 30 to 90 days before the fiscal year end. In addition to the previously required disclosures, the new Davis-Stirling added the following: (1) the person designated to receive official communications sent to the association, (2) the location, if any, designated for posting of notices, (3) a member’s option to receive general notices by individual delivery, and (4) the association’s discipline policy, if any, including any schedule of penalties for violations of the governing documents (previously only the fine schedule needed to be distributed and only when it changed). (5310)

If the fine schedule is adopted or revised after the annual policy is distributed, a supplement must be delivered to the members individually. Fines must not exceed the amount stated in the fine schedule that is in effect at the time of the violation. The Association must provide a copy of the current fine schedule to any member upon request. (5850)

Neither disciplinary action nor a monetary charge for damage to the common area can be effective against a member unless the board fulfills the notice and hearing requirements. (5855)

A director or committee member is prohibited from voting on discipline of that director or committee member, an assessment against that director or committee member for damage to the common area or facilities, that director’s or committee member’s request for a payment plan for overdue assessments, a decision whether to foreclose on that director’s or committee member’s separate interest, a proposed physical change to that director’s or committee member’s separate interest, or a grant of exclusive use common area to that director or committee member. However, this prohibition does not limit any other provision of law or the governing documents that govern a decision in which a director may have an interest, which may mean that the governing documents may allow the prohibited votes. (5350)

 

PRIORITY OF ASSESSMENT LIENS: A PITFALL OF JUDICIAL FORECLOSURES AND MONEY JUDGMENTS (2011)

If an association does not create a new lien after a judicial foreclosure or money judgment, it can lose its priority over other creditors. An assessment, special or regular, becomes a debt of the unit owner when the association levies it. Civ. Code § 1367.1(a). However, the association does not have a security interest in the unit until the association records a Notice of Delinquent Assessment with the County Recorder’s office, after first providing the statutorily required notice to the owner. Recording the Notice of Delinquent Assessment creates a lien on the unit, enabling the association to foreclose on the unit if the unit owner’s account is not brought current. Civ. Code § 1367.1(d) & (g). The assessment lien is effective when the Notice of Delinquent Assessment is recorded and is senior to (i.e., has priority over) all other creditors’ liens that are recorded after the Notice of Delinquent Assessment, unless the CC&Rs contain a clause subordinating the association’s lien to any others (e.g., lenders/mortgagees). Civ. Code § 1367.1(f). The inverse is that the association’s lien is junior to any liens recorded before the Notice of Delinquent Assessment. In other words, any previously recorded liens have priority over the association’s lien.

An assessment lien may be enforced in any manner permitted by law (Civ. Code § 1367.1(g)), which includes non-judicial foreclosure, judicial foreclosure, and lawsuits for a money judgment. Non-judicial foreclosure, the most commonly utilized, is a sale of the unit by a trustee to satisfy payment of the assessment, without any legal proceedings in court. Judicial foreclosure is a legal proceeding by which a court renders a judgment for the amount owed and for sale of the unit to satisfy payment of that amount. (An association might choose judicial foreclosure to preclude the owner’s right to demand binding arbitration to determine any dispute over the assessment (Civ. Code §§ 1367.1(c)(1)(B) & 1367.4(c)(1)) or to obtain the money judgment if the value of the unit is not sufficient to cover the previously recorded liens and the association’s lien.) If the unit’s value is insufficient to cover the previously recorded liens, the association can forego foreclosure, sue the owner for a money judgment only, and collect from the owner’s other assets.

In a recent case, the California Court of Appeal considered the effect of a judicial foreclosure judgment on the priority of the association’s lien over a later recorded lien of another creditor. In Diamond Heights Village Association, Inc. v. Financial Freedom Senior Funding Corp. (June 7, 2011) 11 Cal. Daily Op. Serv. 6930, 2011 Daily Journal D.A.R. 8297, the court ruled that when an assessment lien is enforced through judicial action, the resulting judgment supersedes the assessment lien, and collection requires enforcement of the judgment. According to the Court, when a final judgment is entered, the lien itself is no longer enforceable because the judgment creates a new debt or liability, distinct from the lien and the assessment. In other words, the judgment extinguishes the association’s previous rights and remedies, substituting in their place only the rights granted by the judgment.

To have a security interest in the unit after obtaining the judgment, the association must create a new judgment or execution lien on the unit. A judgment lien is created by recording an Abstract of Judgment. Code Civ. Proc. §§ 674 & 697.310. An execution lien is created by levying execution of the judgment to have the property sold and having the levying officer record a Notice of Levy. Code Civ. Proc. §§ 697.710 & 700.015(a).

In Diamond Heights Village Association, Inc. v. Financial Freedom Senior Funding Corp., the association did neither, relying on its previously recorded Notice of Delinquent Assessment to establish the priority of its security interest in the unit. After the association recorded its Notice of Delinquent Assessment and won its judicial foreclosure judgment, the unit owner obtained a reverse mortgage, giving a deed of trust (i.e., lien) to the lender. The court held that the deed of trust had priority over the association’s rights because the judicial foreclosure judgment replaced the previously recorded assessment lien and, hence, does not relate back to the date of the assessment lien. The court intimated, but did not expressly state, that had the association created a judgment or execution lien, the new lien would have related back to the date of the assessment lien, giving it priority over the deed of trust.

Whenever an association obtains a judgment to collect an assessment, whether a judicial foreclosure judgment or a straight money judgment (even a small claims court judgment), it should immediately have recorded the documents necessary to create a new lien on the unit (Abstract of Judgment and/or Notice of Levy) to protect the priority of the association’s lien over the liens of other creditors.

 

ASSESSMENTS: DEVELOPMENTS FOR THE BOARD’S CONSIDERATION (2008)

Assessments, regular and special, are frequently at the forefront of the Board of Directors’ agenda, especially in these trying economic times. This article highlights three recent developments in the law: (1) a new tool enhancing the association’s ability to monitor foreclosure sales by other lien holders; (2) the legislature’s attempt to provide special consideration for low and moderate income owners; and (3) required reporting on the association’s reserve funding plan.

Monitoring Foreclosures

Senate Bill 1511 was enacted into law on September 28, 2008, amending the foreclosure law to allow associations that manage common interest developments to automatically receive a copy of the trustee’s deed upon the sale of a separate interest governed by the association. Section 2924b previously enabled anyone to record a request for a copy of the notice of default and the notice of sale recorded under a trust deed or mortgage, requiring the person or entity recording the notice to mail a copy to the requesting party. Section 2924b now authorizes an association to record a request that requires anyone who records a notice of default, regarding any separate interest governed by the association, to mail to the association a copy of any trustee’s deed from the sale within 15 business days after it is recorded; provided that the request is recorded before the recording of a notice of default. However, failure to do so does not affect the title to the separate interest.

Early versions of SB1511 rendered the new owner liable for unpaid regular assessments that became due within 180 days before the foreclosure sale. This liability would have applied only to new owners who are not a natural person (e.g., banks, corporations, limited liability companies, and partnerships) and to only the regular assessments, not special assessments and not attorney’s fees or other costs of collection. However, the provision for unpaid assessments did not survive in the final version of the bill.

Low And Moderate Income Owners

During the last legislative session, Assembly Bill 952, which did not become law because the governor vetoed it, attempted to provide more lenient treatment of members with “low” and “moderate” income. The Davis-Stirling Common Interest Development Act currently requires the owners’ approval for the Board to increase the regular assessment by more than 20 percent and to impose a special assessment that exceeds 5 percent of the association’s budgeted gross expenses. Civ. Code § 1366(b). AB 952 originally sought to impose an additional requirement that the owners of units provided to low and moderate income purchasers separately approve. The bill also mandated a payment plan for such owners who requested one and prohibited the association from charging interest or late fees if the assessment is fully paid within 12 months.

The requirement for separate approval by low and moderate income owners was deleted in the later generations of the AB 952, but the bill evolved into an attempt to enhance the requirements for payment plans in general. Currently, the Board is required to meet with an owner who requests a meeting to discuss a payment plan if the owner makes the request within 15 days after receiving the notice of the association’s intent to record a lien for delinquent assessments. Civ. Code § 1367.1(c)(3). AB 952 attempted to increase the time for the owner’s request from 15 to 60 days and require associations to have standards for payment plans and to grant one reasonably consistent with the owner’s ability to make the payments. The bill also would have authorized the association to restrict the duration of payment plans to no more than 3 years and to charge a reasonable administrative fee.

Although the governor vetoed the bill, pressure on the legislature to renew the effort might intensify as the economy’s current woes linger, and the number of foreclosures increases.

Reserve Funding Plan

Civil Code section 1365.5(e) requires that the Board annually review the reserve account requirements for the estimated funds needed to repair, replace, or restore the major components within the next 30 years. The Board must also adopt a reserve funding plan, including anticipated changes in special or regular assessments, indicating how the association will meet that need. Effective January 1, 2009, the financial documents distributed annually to the members must include a summary of the adopted reserve funding plan, along with a notice that the full reserve study plan is available on request. Civ. Code § 1365(b).

 

NEW REQUIREMENTS FOR BOARD MEETING AGENDAS (2008)

The Davis-Stirling Common Interest Development Act has been amended to limit what the board of directors can discuss at open board meetings. Previously, there was no requirement that the board post or distribute an agenda or limit its discussion to items placed on the agenda. Effective January 1, 2008, the Legislature amended Civil Code section 1363.05, known as the “Common Interest Open Meeting Act,” to require that notices of board meetings contain the agenda for the meeting. With some exceptions, the board may not discuss or take action on any item that was not placed on the agenda. The exceptions fall into 4 main categories.

First, the limitation does not apply to emergency meetings. An emergency meeting can be called when there are circumstances that could not have been reasonably foreseen, require immediate attention and possible action by the board, and of necessity make it impractical to provide the required notice.

Second, the board may (A) briefly respond to statements made or questions posed by a non-board member about items that are not on the agenda, and (B) ask a question for clarification, make a brief announcement, or make a brief report on his or her own activities, whether in response to a member’s question or based on his or her own initiative.

Third, subject to the board’s rules or procedures, the board may (A) provide resources for factual information to the association’s manager or other personnel, (B) request the manager or other personnel to report back to the board at a later meeting concerning any matter, (C) have a matter of business placed on a future agenda, and (D) direct the manager or other personnel to perform administrative tasks that are necessary to carry out these tasks.

Fourth, the board may take action on any item of business (A) upon a determination made by a majority of the directors present at the meeting that an emergency situation (i.e., circumstances that could not have been reasonably foreseen by the board, that require immediate attention and possible action by the board, and that, of necessity, make it impractical to provide notice) exists, (B) upon a determination made by two-thirds of the directors present at the meeting, or, if less than two-thirds of the directors are present, by a unanimous vote of the directors present, that there is a need to take immediate action and that the need for action came to the attention of the board after the agenda was posted and distributed with the notice of the meeting, and (C) when the item appeared on an agenda that was posted and distributed for a board meeting that occurred not more than 30 calendar days earlier, and during the earlier meeting action on the item was postponed to the meeting at which the action is taken. Before discussing any item pursuant to this fourth category of exceptions, the board must openly identify the item to the members in attendance at the meeting. Interestingly, examining the exact wording of the amendments to the Open Meeting Act leads to an anomalous result.

Under Civil Code section 1363.05(f), notice of a board meeting is not required when the time and place of the meeting is fixed by the bylaws. In limiting the board’s discussion and action to items placed on the agenda, the statute explicitly refers to the agenda required by section 1363.05(f) to be part of the notice of the meeting. Thus, the limitation seemingly does not apply when notice of the meeting is not given to the association members because the bylaws set the time and place of the meeting. However, such a result most likely was not the legislature’s intent, and the board should limit its discussion and action to the items on the agenda, regardless of whether the bylaws fix the time and place for the meeting, unless one of the exceptions apply.

 

NEW ELECTION PROCEDURES FOR COMMUNITY ASSOCIATIONS (2006)

The Legislature has spoken on elections. Legislation that took effect on July 1, 2006 established several mandatory procedures and requirements for elections in which the members vote directly. This article summarizes those procedures and requirements. It is not intended to be a complete guide, and counsel should be consulted before implementing the procedures and requirements.

Adoption of Association Rules

Associations now must adopt rules, in accordance with the proper statutory procedures, that do all of the following:

(1) Ensure equal access to association media, newsletters, or internet web sites during a campaign for all candidates and members advocating a point of view, including those not endorsed by the board, for purposes that are reasonably related to the election. (The association must not edit or redact any content from these communications, but it may include a statement specifying that the candidate or member, and not the association, is responsible for that content.)

(2) Ensure access to the common area meeting space, if any exists, during a campaign, at no cost, to all candidates, including those who are not incumbents, and to all members advocating a point of view, whether or not endorsed by the board, for purposes reasonably related to the election.

(3) Specify the qualifications for candidates for the board of directors and any other elected position, and procedures for the nomination of candidates, consistent with the governing documents. (Any member must be allowed to nominate himself or herself for election to the board of directors.)

(4) Specify the qualifications for voting, the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and closed, consistent with the governing documents.

(5) Specify a method of selecting one or three independent third parties as inspector(s) of election, which can be appointment by the board, election by the members, or any other method for selecting the inspector(s).

(6) Allow the inspector(s) to appoint and oversee additional, independent third parties to verify signatures and to count and tabulate votes, as the inspector(s) deem appropriate.

Election Inspectors

The job of the inspector(s) is to (1) determine the number of memberships entitled to vote and the voting power of each; (2) determine the authenticity, validity, and effect of proxies, if any; (3) receive ballots; (4) hear and determine all challenges to and questions about the right to vote; (5) count and tabulate all votes; (6) determine when the polls shall close, consistent with the governing documents; (7) determine the tabulated results of the election; (8) do whatever else as may be proper to conduct the election with fairness to all members in accordance with the law and valid association rules. If there are three inspectors, the decision or act by two of them is effective in all respects as the decision or act of them all.

Each election inspector must be an independent third party, which includes without limitation a volunteer poll worker with the county registrar of voters, a licensee of the California Board of Accountancy, and a notary public. Although an inspector may be an association member, an inspector may not be a member of the board of directors, a candidate for the board of directors, related to a member of the board of directors, or related to a candidate for the board of directors. An inspector also 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 the rules mentioned above.

Nominations

The association rules may provide for the nomination of candidates from the floor of membership meetings or nomination by any other manner. The rules also may permit write-in candidates for ballots.

Ballots

Elections regarding (a) assessments requiring a vote, (b) election and removal of members of the association board of directors, (c) amendments to the governing documents, or (d) the grant of exclusive use of common area property must be held by secret ballot.

At least 30 days before the deadline for voting, the association must mail, by first class mail, or deliver to every member ballots and two preaddressed envelopes with instructions on how to return ballots. The voter must not be identified by name, address, lot, parcel, or unit number on the ballot. The voter also does not sign the ballot itself.

The ballot is inserted into a sealed envelope, and that envelope is inserted into a second envelope that is also sealed. In the upper left hand corner of the outer envelope, the voter signs his/her name and writes his/her name and the address or separate interest identifier that entitles him/her to vote. The outer envelope is addressed to the election inspector(s). The envelope may be mailed or delivered by hand to a location specified by the inspector(s). The voting member may request a receipt for delivery. Once a secret ballot is received by the inspector of elections, it is irrevocable.

The inspector(s), or their designee, count and tabulate all votes in public at a properly noticed open meeting of the board of directors or members. Any candidate or other member of the association may witness the counting and tabulation of the votes. No one may open or otherwise review any ballot before the time and place at which the ballots are counted and tabulated. However, the inspector(s), or their designee, may verify the member’s information and signature on the outer envelope before the meeting at which the ballots are tabulated.

The tabulated results of the election must be promptly reported to the board of directors, recorded in the minutes of the next board meeting, and made available for review by the members. Within 15 days of the election, the board must publicize the tabulated results in a communication directed to all members.

If there is a recount or other challenge to the election process, a member, or the member’s authorized representative, may inspect and review the ballots. The confidentiality of the vote must be preserved.

The inspector(s) keep custody of the sealed ballots at all times until after the tabulation of the vote, and the time allowed for challenging the election has expired. The ballots are then transferred to the association, which must store them in a secure place for at least one year after the election.

Proxies

Members cannot be required to use proxies instead of ballots. However, an association may use proxies if permitted or required by the bylaws and if the proxies meet the requirements of applicable laws and the governing documents.

Any portion of a proxy directing the manner in which the proxyholder is to cast the vote must be set forth on a separate page of the proxy that can be detached and given to the proxyholder to retain. In any event, the proxyholder must cast the member’s vote by secret ballot. The member may revoke the proxy before the election inspector receives the ballot.

Number Of Votes

A quorum shall be required only if so stated in the governing documents or other provisions of law. For purposes of establishing a quorum, if required by the governing documents, each ballot received by the inspector of elections is treated as if the voting member were present at a meeting.

Cumulative voting must be allowed if cumulative voting is provided for in the governing documents.

Use Of Association Funds

The statutes prohibit the use of association funds for campaign purposes in connection with any board election. Association funds may not be used for campaign purposes in connection with any other association election, except to the extent necessary to comply with the association’s duties imposed by law.

Examples of prohibited campaign purposes include (1) expressly advocating the election or defeat of any candidate that is on the association election ballot; and (2) including the photograph or prominently featuring the name of any candidate on a communication from the association or its board, other than the ballot and ballot materials, within 30 days of an election. However, providing required equal access to another candidate or advocate is not considered a prohibited campaign purpose.

Enforcement

A member may seek to have a court void election results if the required procedures were not followed.

A member who prevails in enforcing his/her rights under the election procedure statutes is entitled to reimbursement for reasonable attorney’s fees and court costs from the association. Also, the court may impose a civil penalty of up to $500 for each violation. A prevailing association may not recover any costs, unless the court finds the member’s lawsuit was frivolous, unreasonable, or without foundation.

 

BEWARE OF AGREEMENTS TO NEGOTIATE (2002)

When negotiating business deals or any agreements, you should keep in mind a recent development in California law. If you agree to negotiate the terms of an agreement, you have an obligation to do so in good faith. You can be sued if you do not make a good faith effort to reach an agreement.

The law in California has long been that an agreement to agree later on an essential term of a contract does not create an enforceable contract. Even if there is a written document signed by both parties, there is no contract if they intended to leave an essential term open for future or further negotiation. For example, if both parties sign a letter that outlines their general understanding of a future agreement with the intention of drafting a formal contract containing the actual terms, which may be further negotiated, the letter is not a binding contract. Rather, the parties merely entered into an “agreement to agree” and have no obligation to fulfill the terms described in the letter.

In a recent case, Copeland v. Baskin Robbins U.S.A., the Second District Court of Appeal imposed a duty to negotiate in good faith. Having agreed to negotiate, the parties must make good faith efforts to reach an agreement. If, despite their good faith efforts, they ultimately cannot reach an agreement, they have fulfilled their obligation and no liability will ensue. However, if one of the parties refuses to negotiate or negotiates in bad faith, that party can be liable to the other party.

An example of an enforceable agreement to negotiate is where a lessor agrees to withdraw his rental property from the market and negotiate a lease with a particular prospective tenant. The lessor cannot then unilaterally terminate the negotiations and lease the property to someone else. He has an obligation to make a good faith effort to reach an agreement with the prospective tenant.

In the Copeland v. Baskin Robbins case, Copeland negotiated an agreement with Baskin Robbins for the purchase of ice cream manufacturing assets and the sublease of a manufacturing plant. That agreement was contingent on reaching a “co-packing agreement” by which Baskin Robbins would buy ice cream from Copeland. During negotiations on the co-packing agreement, Baskin Robbins broke off the negotiations because of strategic decisions made by its parent company. By breaking off the negotiations for a reason other than an inability to reach an agreement, Baskin Robbins violated its obligation to negotiate in good faith.

This obligation to negotiate in good faith does not apply to all negotiations. As the court explained in Copeland v. Baskin Robbins, when the parties engage in negotiations, under no compulsion to do so, they have no obligation to continue negotiating or to negotiate in good faith; only when they have an agreement to negotiate does the obligation arise.

A potential trap for the unwary is the concept of implied contracts. The law recognizes not only agreements to which the parties expressly assent, but also agreements that are implied by the parties’ conduct. Thus, conduct that implies an agreement to negotiate might subject the parties to an obligation to negotiate in good faith. If you engage in such conduct, you might unwittingly incur the obligation even though you never explicitly agreed, either orally or in writing, to negotiate.

The obligation to negotiate in good faith is new to California law. The courts may define its parameters further. In the meantime, you should be careful about entering into agreements to negotiate (e.g., letters of intent and letters of understanding). Unless you seriously intend to pursue the negotiations to completion, do not enter into an agreement to negotiate. That is not to say that you must actually come to terms; rather, once you agree to negotiate, you must make a good faith effort to reach an agreement. Having made that good faith effort, you have fulfilled your obligation even if you do not reach an agreement.

 

ACCOUNTABILITY IN INVERSE CONDEMNATION CASES (1998)

An important but unanswered question is whether comparative fault principles apply to inverse condemnation actions. Should a public entity, whose public work caused physical damage to private property, be liable for 100 percent of the damage even though other parties, including the owner of the damaged property, contributed to the damage? Few published opinions address this issue, and those that do are inconsistent.

The California Supreme Court recently examined inverse condemnation law in the context of physical damage caused by public flood control and surface drainage facilities. It held that the public entity is liable only for the proportionate amount of damage caused by its facility. Locklin v. City of Lafayette, 7 Cal.4th 327, 360, 368, 27 Cal.Rptr.2d 613, 867 P.2d 724 (1994); Bunch v. Coachella Valley Water District, 15 Cal.4th 432, 436, 447, 63 Cal.Rptr.2d 89, 935 P.2d 796 (1997). These cases mark a departure from the general rule in inverse condemnation that the public entity is liable for the full injury if its conduct or improvement was a substantial cause of the injury, regardless of whether other causes, including the private property owner's own fault or a third party's criminal acts, also contributed to the injury. Blau v. City of Los Angeles, 32 Cal.App.3d 77, 84-85, 107 Cal.Rptr.727 (1973); Marin v. City of San Rafael, 111 Cal.App.3d 591, 595, 168 Cal.Rptr. 750 (1980); McMahan's v. Santa Monica, 146 Cal.App. 3d 683, 699, 194 Cal.Rptr. 582 (1983).

The Locklin and Bunch decisions addressed damage caused by flood control and surface drainage facilities. In formulating the new rule, the California Supreme Court focused on fairness and held "it would be unjust to impose liability on an owner for the damage attributable in part to runoff from property owned by others." Locklin, 7 Cal.4th at 338. However, it remains to be seen whether the California courts will extend this concept of fairness to other types of inverse condemnation cases.

In Ellis v. State of California, 48 Cal.App.4th 1334, 51 Cal.Rptr.2d Adv. 458 (1996) (review granted and dismissed - and thus uncitable under the California Rules of Court), the California Supreme Court had an opportunity to apply comparative fault principles outside the context of flood control or surface drainage cases. In that case, a landslide damaged private hillside property, the jury allocated responsibility among two public entities, the property owners, and other unspecified persons. The court of appeal held that both public entities were jointly liable for all the damage without any offset for the owners' share of fault. The court reasoned that apportionment of fault would be inconsistent with pre-Locklin cases holding public entities strictly liable, regardless of fault, for physical damage caused by public works other than flood control and surface drainage projects. See also Clay v. Missouri Highway and Transportation Commission, _ S.W.2d _, 1997 Mo. App. Lexis 1203 (1997). That reasoning is open to question because California applies comparative fault to strict liability in other areas, such as products liability, based on fairness. Daly v. General Motors Corp., 20 Cal.3d 725, 742, 144 Cal.Rptr. 380, 575 P.2d 1162 (1978). However, in Ellis, the California Supreme Court declined to decide whether comparative fault applied under the facts of that case and dismissed the petition, without discussion, as "improvidently granted."

Ironically, a U.S. district court, applying Illinois law, relied on pre-Locklin California law to hold that comparative fault does apply in inverse condemnation cases. Warner/Elektra/Atlantic Corp. v. County of Dupage, 771 F.Supp. 911 (N.D. Ill. 1991). Although that case involved flood damage, the court did not limit its holding to any particular type or cause of damage. The district court quoted Aetna Life & Casualty Co. v. City of Los Angeles, 170 Cal.App.3d 865, 216 Cal.Rptr. 831 (1985), for the proposition that inverse condemnation "has its roots in the principles of tort and property law," and Granone v. County of Los Angeles, 231 Cal.App.2d 629, 42 Cal.Rptr. 34 (1965), which commented that "the taking or damaging of private property without compensation first being paid is in the field of tortious action." The district court also relied on County of San Mateo v. Berney, 199 Cal.App.3d 1489, 245 Cal.Rptr. 738 (1988), which held that a public entity is entitled to equitable indemnity against the contractor who defectively constructed the damage-causing public improvement. On the basis of these authorities, the district court concluded that inverse condemnation theory is consistent with apportioning fault and shifting liability to the party who is actually at fault in causing the damage.

The Seventh Circuit Court of Appeals affirmed on review in Warner v. County of Dupage, 991 F.2d 1280 (7th Cir. 1993). The Seventh Circuit noted that the Illinois Constitution, like the California Constitution, prohibits the taking or damaging of private property, thus establishing tort-like liability for accidentally caused damage. Accordingly, the Seventh Circuit reasoned that comparative fault principles apply, just as they do in other damages cases. It pointed out that the great majority of jurisdictions, including California, Albers v. County of Los Angeles, 62 Cal.2d 250, 42 Cal.Rptr. 89 (1965), impose a duty on the property owner to mitigate inverse condemnation damages, thereby precluding liability against the public entity for any increase in damages attributable to the property owner's fault. There is no reason to distinguish between the owner's fault in making the damage worse after the onset (mitigation) and the owner's fault in creating the damage in the first instance (comparative fault). Both involve an apportionment of fault and an offset against the public entity's liability.

Public entities should argue that comparative fault principles apply to all inverse condemnation actions. The opposite rule penalizes public entities, at taxpayers' expense, for the wrongful conduct of others. When property or conduct outside the public entity's ownership or control contributes to the damage, fairness requires that the public entity not be liable beyond its proportionate share. Charging public entities with liability for damage beyond that which the public undertaking caused can drain public resources and discourage them from undertaking important public works projects. How can a public entity anticipate the costs associated with a project and manage the risk if it can be liable for any other contributors beyond its control?

The notions of equity underlying American Jurisprudence militate against permitting a property owner to obtain compensation without being accountable for his or her own contribution to the problem. The costs of a public work will be distributed evenly within the community, and the owner of the damaged property will not bear more than his or her proper share if the public entity's liability is limited to the portion of the damage caused by the public undertaking. Most jurisdictions already allow an offset for a property owner's failure to mitigate the damage, and there is no reason for a different rule with respect to comparative fault.

Effective Representation Responsive to Our Clients' Needs

Print Print | Sitemap
© Pariser and Pariser, LLP

Call

E-mail