Judge: Mark A. Young, Case: 23SMCP00557, Date: 2024-01-10 Tentative Ruling

Case Number: 23SMCP00557    Hearing Date: January 10, 2024    Dept: M

CASE NAME:           Malibu County Estates Homeowners Assoc., v. Members, et al.

CASE NO.:                23SMCP00557

MOTION:                  Petition for Order Reducing Percentage of Votes Necessary to Amend

HEARING DATE:   1/10/2024

Legal Standard

Under Civil Code section 4275, the Court has the discretion to reduce the percentage of the affirmative votes necessary to authorize an amendment to the declaration of a Common Interest Development. This section provides in relevant part:

(a) If in order to amend a declaration, the declaration requires members having more than 50 percent of the votes in the association, in a single class voting structure, or members having more than 50 percent of the votes in more than one class in a voting structure with more than one class, to vote in favor of the amendment, the association, or any member, may petition the superior court of the county in which the common interest development is located for an order reducing the percentage of the affirmative votes necessary for such an amendment. The petition shall describe [a] the effort that has been made to solicit approval of the association members in the manner provided in the declaration, [b] the number of affirmative and negative votes actually received, [c] the number or percentage of affirmative votes required to effect the amendment in accordance with the existing declaration, and [d] other matters the petitioner considers relevant to the court’s determination. The petition shall also contain, as exhibits thereto, copies of all of the following:

(1) The governing documents.

(2) A complete text of the amendment.

(3) Copies of any notice and solicitation materials utilized in the solicitation of member approvals.

(4) A short explanation of the reason for the amendment.

(5) Any other documentation relevant to the court’s determination.

[…]

(c) The court may, but shall not be required to, grant the petition if it finds all of the following:

(1) The petitioner has given not less than 15 days written notice of the court hearing to all members of the association, to any mortgagee of a mortgage or beneficiary of a deed of trust who is entitled to notice under the terms of the declaration, and to the city, county, or city and county in which the common interest development is located that is entitled to notice under the terms of the declaration.

(2) Balloting on the proposed amendment was conducted in accordance with the governing documents, this act, and any other applicable law.

(3) A reasonably diligent effort was made to permit all eligible members to vote on the proposed amendment.

(4) Members having more than 50 percent of the votes, in a single class voting structure, voted in favor of the amendment. In a voting structure with more than one class, where the declaration requires a majority of more than one class to vote in favor of the amendment, members having more than 50 percent of the votes of each class required by the declaration to vote in favor of the amendment voted in favor of the amendment.

(5) The amendment is reasonable.

(6) Granting the petition is not improper for any reason stated in subdivision (e).

[…]

(e) […] [T]he court shall not be empowered by this section to approve any amendment to the declaration that:

(1) Would change provisions in the declaration requiring the approval of members having more than 50 percent of the votes in more than one class to vote in favor of an amendment, unless members having more than 50 percent of the votes in each affected class approved the amendment.

(2) Would eliminate any special rights, preferences, or privileges designated in the declaration as belonging to the declarant, without the consent of the declarant.

(3) Would impair the security interest of a mortgagee of a mortgage or the beneficiary of a deed of trust without the approval of the percentage of the mortgagees and beneficiaries specified in the declaration, if the declaration requires the approval of a specified percentage of the mortgagees and beneficiaries.

Analysis

Petitioner Malibu Country Estates Homeowners’ Association (“Petitioner” or “HOA”) moves the Court for an order reducing the percentage of votes necessary to amend its declaration under Civil Code section 4275. The Petition describes the HOA as composed of owners of single-family residences within a community development project, containing one hundred and seven (107) lots (the “Units”) within the HOA jurisdiction. (Pet. ¶¶ 3-4.) Respondents are the individual owner-members of the Association that own units within the HOA’s jurisdiction. (¶ 5.) Reviewing the Petition, the Petitioner meets the statutory requirements of section 4275.

Procedural Requirements of the Petition

The Petition provides the procedurally required attachments. The HOA is subject to certain governing documents, including bylaws and CC&Rs. (Pet. ¶ 6, Ex. A.) Importantly to this petition, pursuant to Section 21 of the CC&Rs, one hundred percent (100%) of the members must vote “for” an amendment to the CC&Rs. (¶ 7.) The HOA sought to amend the Governing Documents with the Proposed Amended and Restated Declaration of Covenants, Conditions and Restrictions (the "Proposed Amendments"). (Pet., Ex. B.) The HOA provides the notices and solicitation materials used to garner approval of the Proposed Amendments (Id., Exs. C-E) as well as the balloting materials used (Exs. F-G).

 The Petition describes the reasoning behind the Proposed Amendments, which reflect the HOA community’s desire to grow and convert the HOA Jurisdiction into a gated community (the “Project”). Currently, HOA expenses are minimal—usually between approximately $10,000 and $15,000 per year. (Pet. ¶ 25.) To fund these expenses, the HOA makes an annual assessment of $250 per year, per Unit. (Id.) The Project would increase the annual HOA costs, as the HOA would have to take over the streets as common property of the HOA. (Id.) The current CC&Rs do not contain provisions which allow for the effective collection of assessments. (Id.) The Proposed Amendments seek to clarify and confirm that all homeowners are members of the Association and are obligated to contribute to their share of the assessments as determined by the Governing Documents. (¶ 27.) The Amendments also seek to remove references to the original developer, as it no longer owns any Units. (¶ 28.) Additionally, the Amendments would delete a reference to wood shingles and shakes as roof coverings, following the Malibu Municipal Code. (¶ 29.)

The Amendments to section 20 are the “main reason” for amending the CC&Rs. (¶ 30.) Critically, it provides rules for assessments and their collection, including the Association’s right to lien. (Id.) Section 21 has been inserted to avoid the Association’s liability for members’ negligence such as if a member’s failure to properly maintain a tree causes harm or damage to users of the streets in the event the streets become the Association’s common property. (¶ 31.) The Court also notes amendments to section 23, which provides:

Effective on Jan. 1, 2010, the Declaration shall be extended so that the Declaration shall run with and bind the Association property, and shall inure to the benefit of and shall be enforceable by the Association or the owner of any property subject to the Declaration, his or her respective legal representatives, heirs, successors and assigns, for a term of thirty (30) years from the date this Supplement and Amendment to Declaration is recorded, after which time the term shall be automatically extended for successive periods of ten (10) years, unless an instrument in writing, signed by a majority of the then owners of the lots, has been recorded within the year preceding the beginning of each successive period of ten (10) years, agreeing to terminate the covenants and restrictions.

(Id., Ex. B.)

The Petition shows the efforts made to solicit approval of the Proposed Amendments. (See Pet. ¶¶ 13-18.) The Board undertook an analysis of the pros and cons of the Project and presented its analysis to all members at a duly noticed Special Members Meeting held on October 22, 2022. (Pet. ¶ 24.) The HOA also conducted a formal straw poll for the purpose of determining the membership’s level of support for the Project. (¶¶ 24-25.) At present, there is only one class of voting membership consisting of the members of the HOA. (¶ 10, see Meissner Decl., ¶ 3) From the straw poll, eighty (80) members voted in favor of the Project, while fifteen members voted against the Project, and twelve (12) members did not participate in the vote. (¶ 26, Ex. G.) Further, pursuant to formal balloting, out of one hundred and seven (107) total members, ninety-eight (98) ballots were submitted, and the results of the voting were as follows: a. Eighty-one (81) members voted in favor of the Proposed Amendments; b. Seventeen (17) members voted against the Proposed Amendments; and c. Nine (9) ballots were unreturned. Thus, 75% of the total members approved the Proposed Amendments. Of course, this falls short of the 100% required under the current CC&Rs.

The above record shows that balloting on the proposed amendment was conducted in accordance with the governing documents and applicable laws. It demonstrates that the HOA Board conducted a reasonably diligent effort to permit all eligible members to vote on the proposed amendment. Further, from that voting, a clear supermajority of the membership voted in favor of adopting the Proposed Amendments. Moreover, the record does not show that the proposed amendments would violate subsection (e)’s forbearances. Declarant no longer owns any separate interests in the Project. As such, no special rights, preferences, or privileges belonging to the Declarant have been altered by the Proposed Amendments. (Pet. ¶ 34.) The Association only has one class of membership, and thus Civil Code section 4275(e)(1) could not apply to this petition. (¶ 35.)  Further, the terms of the declaration do not show that any mortgagee, the City of Malibu, or the County of Los Angeles would be entitled to notice of the instant proceedings.

Reasonableness

Respondents Cynthia Kohrs, Sue Parker Frailey, Glen Frailey, Mark Kunerth, and David E. Hessami oppose the Petition. Opposing respondents warn that they are strongly opposed to changing the existing CC&Rs, especially giving power to the HOA to assess and put liens on their property. They challenge the reasonableness of these terms.  Further, they argue that the express purpose of this procedure was to address voter apathy, which is not shown here.

Voter apathy does not need to be shown per the plain language of the statute. “ ‘Viewed objectively, the purpose of ... [section 4275] is to give a property owners' association the ability to amend its governing documents when, because of voter apathy or other reasons, important amendments cannot be approved by the normal procedures authorized by the declaration. [Citation.] In essence, it provides the association with a safety valve for those situations where the need for a supermajority vote would hamstring the association.’ ” (Fourth La Costa Condo. Owners Assn. v. Seith, (2008) 159 Cal. App. 4th 563, 570, emphasis added.) While voter apathy may be a purpose of the statute, the statute flexibly allows for “other reasons” and “does not include voter apathy among the list of elements that must be established.” (Orchard Est. Homes, Inc. v. Orchard Homeowner All., (2019) 32 Cal. App. 5th 471, 475-476.)

As the party petitioning for relief from a supermajority vote requirement, the HOA has the burden of proving that the amendments are reasonable. (Fourth, supra, 159 Cal.App.4th at 577.) “The term ‘reasonable’ in the context of use restrictions has been variously defined as ‘not arbitrary or capricious’ [Citations], ‘rationally related to the protection, preservation or proper operation of the property and the purposes of the Association as set forth in its governing instruments,’ and ‘fair and nondiscriminatory.’ [Citations.]” (Id.)

Here, the HOA shows that the proposed amendments are reasonable under this standard.

Generally, as noted above, the disputed amendments provide for general and special assessments which are required to fund the Project, as well as mechanisms for enforcing the assessments. The Project itself is rationally related to the preservation and operation of the HOA’s property and furthers the purpose of the HOA. These are not arbitrary and capricious assessments, but rationally related to the operation of the HOA. The amendments set out objective, limited and reasonable terms for regular, special and emergency assessments. For instance, the proposed assessments “shall be used exclusively to promote, protect, enhance and maintain the recreation, health, safety and welfare of the residents… improvement, maintenance, replacement, repair and operation of the Common Area… and to further any other purpose that is for the common benefit of the Owners...” (Proposed Amendments, § 20.2.) There are express guidelines, terms and limitations to the general and special assessments, as well as the requisite due process for individualized assessments. (Id., §§, 20.3 – 20.12.) The CC&Rs also provide rational terms and limitations for liabilities. (§§ 20.13-20.15, 21.)

Respondents argue that these terms would impose significant financial ramifications. Respondents observe that HOA dues are currently $250 per year (approx. $20.83 per month), and that the proposed amendments will result in an increase to approximately $350.00 per month, and an initial special assessment of $1785.00 per homeowner. Respondents would find it unfair or unreasonable for the HOA to impose such assessments for “any reason.” However, as noted, there are express reasons and procedures for the assessments. Thus, the HOA cannot impose assessments for an arbitrary reason, but only the reasons set forth in the CC&Rs. Further, it is probable that converting MCE to a gated community would lead to dramatic increases in monthly assessments. However, such an increase in the assessments would not render the amendments automatically unreasonable, arbitrary or capricious. Even if $350.00 per month could be considered expensive, the assessments would still be rationally related to the purpose of the HOA and the preservation/operation of the HOA property. Additionally, the placement of liens or other enforcement mechanisms would be reasonable here. The HOA needs a meaningful ability to raise funds, which would necessarily include enforcement mechanisms for assessments.

The only term that concerns the Court are the edits to section 23. Respondents argue that the current CC&Rs expire by default unless a majority of Owners sign an extension, and that the Amendments would automatically extend after the initial 30-year term for additional 10-year extension terms unless a majority of Owners sign and record a termination. Petitioner does not explain the rationale behind this change, and how this change would relate to the Project or the overall purpose of the HOA. Petitioner must explain the reason for the amendment and why the amendment is reasonable in light of the above legal standard before the Court would include the change in any amendment.

If Petitioner provides a satisfactory explanation of the proposed terms for section 23, then the Court is inclined to grant the petition. If that occurs, the Court would order the petition GRANTED. The Proposed Amendments are hereby deemed approved by the Court and shall be effective upon: (1) this Court's order; (2) recordation of the Amended CC&Rs (attaching this order) with the County Recorder's Office; and (3) distribution of the recorded CC&Rs and this Order to all HOA members. 

Otherwise, the Court would tentatively grant the petition except for the proposed changes in section 23.