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MARK S. E. KOVICH, Plaintiff and Appellant, v. PASEO DEL MAR HOMEOWNERS' ASSOCIATION, Defendant and Respondent. No. B089569. COURT OF APPEAL OF CALIFORNIA, SECOND APPELLATE DISTRICT, DIVISION SIX 41 Cal. App. 4th 863; 48 Cal. Rptr. 2d 758; 1996 Cal. App. LEXIS 2; 96 Cal. Daily Op. Service 133; 96 Daily Journal DAR 183 January 3, 1996, Decided PRIOR HISTORY:
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Superior Court of Ventura County, No. 137395, Kenneth W. Riley, Judge.
CORE TERMS: homeowners, seller, duty, duty to disclose, disclose, purchaser, developer, nondisclosure, disclosure, townhouse, common interest development, real property, common areas, prospective purchaser, failure to disclose, fiduciary, demurrer, fiduciary relationship, cross-complaint, lawsuits, confidential relationship, special relationship, statutory provision, public interest, impose a duty, duty to tell, breached, repair, buyer, owes
Civil Procedure > Pleading
& Practice > Defenses,
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Real & Personal Property Law > Sales, Exchanges & Remedies > ![]()
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Real & Personal Property Law > Condominiums, Cooperatives & Homeowner Associations > ![]() Real & Personal Property Law > Sales, Exchanges & Remedies > ![]()
Real & Personal Property Law > Condominiums, Cooperatives & Homeowner Associations > ![]() Real & Personal Property Law > Sales, Exchanges & Remedies > ![]()
Business & Corporate Entities > Corporations > Directors & Officers > ![]()
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![]() COUNSEL: Robert G. Foote for Plaintiff and Appellant. Myers, Widers, Gibson & Long, Jeffrey T. Moerer and Kelton Lee Gibson for Defendant and Respondent. JUDGES: Opinion by Yegan, J., with Stone S. J., P. J., and Gilbert, J., concurring. OPINIONBY: YEGAN, J. OPINION: [*865] [**759] YEGAN, J. Here we hold that a homeowners association has no duty to tell a prospective purchaser about construction defects or the existence of a civil action against the developer to repair the defects. Mark S. E. Kovich appeals from a judgment entered after the trial court sustained respondent's, Paseo Del Mar Homeowners' Association (Paseo), demurrer without leave to amend. The trial court correctly ruled that Paseo owed no duty to appellant. On April 18, 1990, appellant entered into a written agreement with Donna Bedford to purchase a townhouse for $ 166,000. The townhouse was in a common interest development. ( Civ. Code, § 1352.) Bedford was a member of Paseo, a nonprofit homeowners association, that owned, managed, and controlled the common areas. [***2] After escrow closed, appellant discovered that the townhouses had cracked walls and slabs. Appellant filed suit against the seller and Paseo for negligence, fraudulent concealment, and intentional misrepresentation. The third amended complaint alleged that Paseo knew about the construction defects and had brought suit against the developer, "M.J. Brock & Sons, Inc. for the correction of said defects in common areas. Said cause is presently pending before the Ventura County Superior Court as case number CIV 108612." Appellant alleged that Paseo kept the information secret and breached a duty to disclose the information to prospective purchasers so they "could assess the proper value of the units." Paseo demurred contending it breached no duty of care. The trial court by written order ruled: "A homeowners' association's duties with respect to disclosure of information to members and others are specifically enumerated by CC 1365, 1365.5, and 1368. These sections do not require an association to voluntarily disclose the existence of construction defects or pending litigation. CC 1368 requires a selling owner to provide a prospective purchaser with Articles of Incorporation, Bylaws, [***3] CC&R's, a copy of the association's most recent financial statement; a true statement as to the amount of the association's assessments and a statement as to any limitations on the occupancy, residency or use of a lot or unit on the basis of age." The trial court further ruled: "The obligation to provide buyers with the above-referenced data rests with the selling owner, not the homeowners' association, and is in addition to the transfer obligations to sellers per CC 1102-1115 and CC 1133-1134. CC [**760] 1368 obligates the association to provide the seller within 10 days of a written request . . . copies of the requisite documents and information. CC 1365 contains the only statutory provision [*866] requiring a homeowners' association to provide members with information absent a request. Per that section, on an annual basis, the association must provide its members with its operating budget. There is no statutory provision setting forth a duty on the part of a homeowner's association to voluntarily disclose to its members or to third parties the existence of construction defects or litigation involving construction defects." HN1 ![]() CA(1a) ![]() CA(2) ![]() ![]() CA(1b) ![]() - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n1 In 1990 HN3 ![]() - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [***7] HN4 ![]() Civil Code sections 1365, 1365.5, and 1368 do not impose a duty on homeowners associations to disclose construction defects to prospective purchasers. A homeowners association has a fiduciary relationship with its members. ( Cohen v. Kite Hill Community Assn. (1983) 142 Cal. App. 3d 642, 650-651 [191 Cal. Rptr. 209].) In those cases [**761] where a homeowners association sues for construction defects, the developer is barred from filing a cross-complaint for equitable indemnity against the individual owners. ( Lauriedale Associates, Ltd. v. Wilson (1992) 7 Cal. App. 4th 1439, 1441 [9 Cal. Rptr. 2d 774].) Such a cross-complaint would pit the property owners against the homeowners association and undermine the special relationship. ( Id., at pp. 1444-1445; Jaffe v. Huxley Architecture (1988) 200 Cal. App. 3d 1188, 1192-1193 [246 Cal. Rptr. 432] [cross-complaint against directors barred].) Maillard v. Dowdell (Fla.Dist.Ct.App. 1988) 528 So.2d 512 is the only case discussing whether a homeowners association owes a duty to disclose construction defects to prospective purchasers. There, the plaintiffs purchased a condominium unit and brought suit against the [***8] homeowners association for failure to disclose structural defects. The Florida Court of Appeal held that the association had no fiduciary duty to disclose information concerning the construction defects. ( Id., at p. 513.) We agree with Mallard v. Dowdell. Paseo had a fiduciary relationship with the seller and other association members, not appellant. CA(3) ![]() ![]() We reject the argument that such a duty arises because a corporation is required to keep adequate books and records pursuant to Corporations Code [*868] section 8320. Appellant alleged that Paseo "failed to clearly describe the construction defects and its pending litigation with the developer in its general membership meetings" and "its minutes of the general membership meetings." However, no facts are alleged that the seller or any other person involved in the sale made a demand on Paseo to produce corporate minutes or records before the sale was consummated. (See, Civ. Code, § 1363, subd. (f); Corp. Code, § 8333.) Appellant argues that the duty to disclose may be predicated on the [***9] principle that everyone must abstain from conduct that unreasonably causes injury to another. ( Civ. Code, § 1708, 1714, subd. (a).) In Rowland v. Christian (1968) 69 Cal. 2d 108 [70 Cal. Rptr. 97, 443 P.2d 561, 32 A.L.R.3d 496], our Supreme Court held that existence of such a duty ". . . involves the balancing of a number of considerations; the major ones are the foreseeability of harm to the plaintiff, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, the policy of preventing future harm, the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved. [Citations.]" ( Id., at pp. 112-113; see also Lompoc Unified School Dist. v. Superior Court (1993) 20 Cal. App. 4th 1688, 1692 [26 Cal. Rptr. 2d 122].) Stated another way, ". . . the imposition of a duty is ultimately a question of fairness and the inquiry involves a weighing of the relationship of the [***10] parties, the nature of the risk, and the public interest in the proposed solution [citations]." ( Totten v. More Oakland Residential Housing Inc. (1976) 63 Cal. App. 3d 538, 545 [134 Cal. Rptr. 29].) Absent here is the close connection between Paseo's conduct and the injury suffered. Appellant's injuries may be attributable to seller's failure to disclose information affecting the value of the property. ( Civ. Code, § 1102 et seq.) n2 The seller had the duty to repair and maintain the townhouse. ( Civ. Code, § 1364, subd. (a).) The repair of the common areas was the responsibility of [**762] Paseo, to be paid with homeowners association assessments. Pursuant to Civil Code section 1365 Paseo was required to provide a statement of [*869] the association's revenue and expenses, a statement of its reserves, and a statement of whether special assessments would be made in the near future. No facts were alleged that Paseo failed to provide this information. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n2 When appellant purchased the property, Civil Code section 1102.6 required that the seller disclose soils and grading problems, common areas, whether the homeowners association had any authority over the subject property, and "[a]ny lawsuits against the seller threatening to or affecting this real property. . . ." ( Civ. Code, § 1102.6, Form provision C.16.) HN6 ![]() - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [***11] Where, as here, the seller is charged with the responsibility of disclosing information to a purchaser, no public interest would be served by imposing the same disclosure requirements on a homeowners association. We reject the argument that Paseo had a duty to monitor the seller's disclosures or volunteer information about construction defects. Equally without merit is the argument that Paseo had a duty to disclose information concerning its suit against the developer. Such a disclosure may have prejudiced Paseo's position in the litigation and resulted in the dissemination of confidential information that encompassed attorney-client and work product matters. Applying the factors set forth in Rowland v. Christian, supra, 69 Cal. 2d 108, we hold that HN7 ![]() ![]() In purchasing the townhouse, appellant impliedly agreed that the property rights being sold were subordinate to the interest of the homeowners association as a whole. Paseo's fiduciary duties ran to the association members, not prospective purchasers. ( Frances T. v. Village Green Owners Assn. (1986) 42 Cal. 3d 490, 505 [229 Cal. Rptr. 456, 723 P.2d 573]; see also Heliotis v. Schuman (1986) 181 Cal. App. 3d 646, 650-651 [226 Cal. Rptr. 509] [attorney acting as seller's fiduciary has no duty to disclose soil problems to purchaser].) HN9 ![]() Appellant's reliance on Karoutas v. HomeFed Bank (1991) 232 Cal. App. 3d 767 [283 Cal. Rptr. 809] does not compel a different result. [*870] There, a bank foreclosed on a deed of trust, conducted a trustee's sale, and failed to disclose construction defects. The Court of Appeal held that the successful bidder could bring an action against the bank for nondisclosure because it actively participated in the sale. ( Id., at pp. 772-775.) The case is inapposite. Paseo did not participate in the sale, have any direct communications with appellant, or benefit from the sale. As a homeowners association, it had no statutory or common law duty to disclose information about construction defects or its suit against the developer. Appellant's remaining arguments are without merit. HN10 ![]() Appellant has failed to state a cause of action against Paseo for negligence, fraud, or concealment. No facts are alleged that Paseo knew that appellant intended to purchase the property or that Paseo induced appellant to purchase the property. The judgment is affirmed with costs to Paseo. Stone (S. J.), P. J., and Gilbert, J., concurred. |