Judge Mark A. Young, Case Number: 19SMCV00289, Date: 2023-08-10 Tentative Ruling

Judge: Mark A. Young, Case: 19SMCV00289, Date: 2023-08-10 Tentative Ruling

Case Number: 19SMCV00289 Hearing Date: November 21, 2023 Dept: M

CASE NAME: Saks, et al., v. Pink, et al.

CASE NO.: 19SMCV00289

MOTION: Motion for an Order Authorizing Receiver to Increase Assessments

HEARING DATE: 11/21/2023

Legal Standard

“‘A receiver is an agent and officer of the court, and is under the control and supervision of the court. [Citations.]’” (Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, 922.) “‘The receiver is an agent of the court and not of any party, and as such: (1) Is neutral; [¶] (2) Acts for the benefit of all who may have an interest in the receivership property; and [¶] (3) Holds assets for the court and not for [any party].’” (CRC, rule 3.1179(a).) “The receiver has, under the control of the Court, power to bring and defend actions in his own name, as receiver; to take and keep possession of the property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the Court may authorize.” (CCP § 568; see also CCP § 128(a)(5) [the court has the power to “control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it”].)

Analysis

Receiver Stephen J. Donell moves for an order authorizing him to increase the Beverly Spalding Court’s Homeowners Association’s (HOA) regular monthly assessment, as well as levy a one-time special assessment, to effectuate the projected 2024 HOA Budget. Specifically:

(1) An increase to the ‘regular’ assessment in excess of twenty (20) percent to meet the HOA’s projected operating budget for fiscal year 2024, to specifically address deferred maintenance, basic safety issues, operating costs, and other items that are the subject of regular dues; and

(2) Levy a one-time ‘lump sum’ special assessment of $100,000 ($9,090.90 per unit) to pay for a portion of the Receiver’s fees and expenses, as well as a portion of the fees of professionals hired by the Receiver, which have already been incurred and remain unpaid.

The receiver argues that these assessments are necessary and reasonable because (i) the HOA’s revenues are insufficient to pay increased operating expenses projected in fiscal year 2024, including, but not limited to, the administrative expenses of the receivership estate, necessary repairs and maintenance costs and required capital expenditures, insurance expenses, and legal fees; (ii) cash reserves are insufficient to cover such increases; and, as such, (iii) levying and collecting the Assessment from the HOA’s members is the appropriate and only available option.

The Court concurs that both an increase in the regular assessments and special assessments are reasonable and necessary. Pursuant to the appointment order, the Receiver is responsible for developing a proposed budget for the 2024 fiscal year. During fiscal year 2024, the Receiver projects that the HOA’s fees and charges must be increased substantially. (See Donnell, Decl., Ex. 4 [exhibits detailing the proposed budget]; Supp. Donnell Decl., ¶¶ 11-18.) The HOA’s projected revenue, without any increases to assessments, will be insufficient to meet the operating budget of the HOA. (Donnell Decl., ¶ 4.) The proposed increases are reasonable in light of the significant amount of deferred maintenance due to the lack of any increase in the assessments collected by the HOA in prior years. The HOA's current cash position is so dire that the Receiver has had to reduce the frequency of cleaning and landscaping services. The HOA owes $253,441.91 to various vendors. (Ulrich Decl., Ex. 5, ¶ 6.) The receiver claims that “draconian cuts” will be necessary if a dues increase is not implemented. Indeed, the HOA has been mismanaged for years, and this increase is necessary to remedy this mismanagement. (See Supp. Donnell Decl., ¶¶3-6.)

The problem, however, is that the requested assessments would exceed the limitations in place by the CC&Rs, the bylaws, and the Davis-Sterling Act. The Davis-Sterling Act provides, in relevant part:

(a) Annual increases in regular assessments for any fiscal year shall not be imposed unless the board has complied with paragraphs (1), (2), (4), (5), (6), (7), and (8) of subdivision (b) of Section 5300 with respect to that fiscal year, or has obtained the approval of a majority of a quorum of members, pursuant to Section 4070, at a member meeting or election.

(b) Notwithstanding more restrictive limitations placed on the board by the governing documents, the board may not impose a regular assessment that is more than 20 percent greater than the regular assessment for the association’s preceding fiscal year or impose special assessments which in the aggregate exceed 5 percent of the budgeted gross expenses of the association for that fiscal year without the approval of a majority of a quorum of members, pursuant to Section 4070, at a member meeting or election.

(Civ. Code § 5605(a)-(b).) The CC&Rs and bylaws are consistent with the limitation expressed by subdivision (b). (See Donnell Decl., Exs. 2-3 [Bylaws, Art. VI, §1(A)-(K); CC&Rs, Art. III, §§ 3-4].)

The receiver proposes to increase the HOA’s regular assessments by approximately 185% in comparison to fiscal year 2023. (Donell Decl., ¶ 6.) The receiver proposes to levy a special assessment for $100,000.00 ($9,090.90 per unit). However, the gross expenses of the association for the 2023 fiscal year was $153,118.00 and the gross expenses for 2024 is projected to be $583,490.00. Of course, the proposed $100,000.00 special assessment exceeds 5% of these gross expenses. Thus, under the relevant law, the Receiver must obtain approval from a majority of a quorum members. The Receiver sought to obtain approval through the HOA’s secret ballot voting procedures. However, the receiver was unable to reach a quorum for a vote. (Donnell Decl., ¶¶ 8-10, Ex. 5.)

The Receiver does not point to any authority, and the Court is unaware of any authority, which would allow the Court and Receiver to ignore the provisions of the CC&Rs and Davis–Stirling Act. Based on the appointment order, the Receiver has the authority to make all necessary repairs and carry out the affairs of the HOA pursuant to its bylaws, CC&Rs and the Davis Sterling Act. There is also no suggestion that the Court may independently ignore these contractual and statutory rights. The Court understands that “doing nothing” is not in the best interest of the HOA or its members. However, the Court cannot grant this specific request, since such an order would run contrary to the CC&Rs and statutory law. Therefore, the Court tentatively denies the requested order.

Accordingly, the motion is DENIED.