California Appeals Court

Villa Europa Homeowners Association v. Superior Court of San Diego County

VILLA EUROPA HOMEOWNERS ASSOCIATION et al., Petitioners,

v.

THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent.

RENEE SACK, Real Party in Interest.

No. D056640.

Court of Appeals of California, Fourth District, Division One.

Filed April 22, 2010.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

NARES, Acting P. J.

THE COURT: Proceedings in mandate following orders of the Superior Court of San Diego County. William R. Nevitt, Jr., Judge. Petition granted.

This petition arises out of a dispute between the petitioner, Villa Europa Homeowners Association (the Association), and real party in interest, Renee Sack, a member of the board of directors of the Association. Sack brought an action as an individual homeowner against the Association alleging she suffered water and mold damage to her condominium unit (the mold case). In that action, through a request for production of documents, she sought records from the Association. She thereafter filed a petition under Corporations Code section 8334, which provides: "Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director." In that petition, Sack sought, as a director of the Association, the same records she sought in the mold case. The court granted the petition, allowing Sack and her attorney in the mold case access to the Association's records.

However, before the court granted the petition, the Association's board of directors voted to remove Sack as a board member. Moreover, before the Association produced the records, the Association's membership voted to recall all of the Association's board of directors, including Sack. The court stayed the effect of the vote to remove Sack and to recall the directors pending production of the documents to Sack.

In this petition, the Association and N. N. Jaeschke, Inc. (together petitioners), a management service and the Association's custodian of records, assert (1) the court's stay of the recall vote exceeded its jurisdiction; (2) allowing Sack access to the Association's records endorses an abuse of the discovery process in the mold case; and (3) the order requiring production of Association records to Sack will result in a breach of her fiduciary duty to the Association.

We conclude the court exceeded its jurisdiction in staying the effect of the vote to recall the Association's board of directors, including Sack. We further conclude that the recall vote rendered Sack's section 8334 petition moot as her removal made her no longer entitled to review Association documents in her capacity as a director. Accordingly, we grant the Association's petition for writ of mandate and direct the court to set aside its orders of December 31, 2009 and January 7, 2010.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Mold Case

In December 2002 Sack, as an individual homeowner, filed a complaint against the Association, arising from alleged water and mold damage to her unit. Specifically, she alleged water had come through the ceiling of her master bathroom, and there was a backup in the drain line of the kitchen sink.

In April 2009 Sack served the Association with a request for production of documents. In addition to requesting documents related to her mold case, Sack requested the Association produce all Association minutes from 2003 to the present, and its financial records. The Association responded, objecting to the requests, and agreeing to produce, with the exception of financial records, all relevant, nonprivileged documents not equally available to Sack. On October 14, 2009, Sack filed a motion to compel further responses to her request for production of documents.

B. The Section 8334 Petition

On October 20, 2009, Sack went to the offices of N. N. Jaeschke, Inc. (Jaeschke), a management company that keeps the Association's books and records. Sack requested access to the Association's books and records. She was told the office manager was not there and that she would have to schedule a time to return. The next day, she was informed by a Jaeschke employee she would need to provide a list of documents she was seeking and whether she was making the request as a board member or owner. Sack refused, asserting her absolute right to inspect documents as a board member. A Jaeschke representative then informed Sack she was not entitled to review documents related to her personal dispute with the Association or those impacting the privacy rights of third parties.

When Sack arrived at the Jaeschke office to inspect documents, she was presented with a form she was requested to sign before reviewing documents, acknowledging her fiduciary duty to maintain the confidentiality of privileged and confidential information, agreeing to maintain the confidentiality of the documents and not produce them to her counsel in the mold case, use them in that litigation, or disclose them to third parties. Sack refused to sign the acknowledgement, insisting she had an absolute right to inspect all Association books and records, without limitation.

Thereafter, on November 5, 2009, counsel for the Association cautioned Sack's attorney in the mold case from directing her to use her rights as a director to obtain documents to assist her in her personal litigation against the Association, thereby circumventing the discovery process in the mold case. Counsel for the Association reminded Sack's attorney of Sack's fiduciary duty to the Association as a board member, including her duty to maintain the Association's confidences and act in the Association's best interests. Counsel for the Association agreed to make records not pertaining to her dispute with the Association available for inspection, so long as Sack acknowledged her fiduciary duty not to disclose such records without approval of the Association's board of directors.

On November 16, 2009, Sack filed a petition under section 8334 to obtain the same documents she sought through the discovery process in the mold case. In response, the Association agreed to allow Sack to inspect the Association's records without a formal acknowledgement of her fiduciary duty to maintain the confidentiality of the Association's records. However, counsel for the Association again warned Sack's counsel that if she chose to use her inspection rights as a director to further her own personal gain, the Association would consider such action a breach of her fiduciary duty to the Association.

Sack maintained that she could properly use her inspection of documents as a board member to gather evidence in her mold case against the Association and would not agree to not use such information in the mold case. Sack continued with her petition seeking access to all Association documents except those related to the mold case that were governed by the attorney-client privilege.

C. Votes To Remove Sack as a Director/Stay Order

On October 13, 2009, approximately one month before Sack filed her section 8334 petition, the Association's membership presented the board with a petition for the removal of the entire board of directors (recall vote). The board set the recall vote for January 9, 2010. Ballots for the recall vote were distributed to the members of the Association.

On December 10, 2009, the Association's board of directors gave Sack notice that it was calling a special meeting on December 15, 2009, to remove Sack as a director based upon her failure to attend three consecutive board meetings, in alleged violation of the Association's bylaws.

In response, on December 15, 2009, Sack sought an ex parte order restraining the Association's board from removing her as a director. The ex parte application did not seek a stay of the effect of a vote to remove her as director.

At the ex parte hearing the court denied the request for a temporary restraining order on the vote to remove Sack from the Association board, but ordered that the effect of any vote removing Sack from the board was stayed until "the later of (a) seven days after the Court rules on the petition, presently scheduled for hearing on 12/31/09, or (b) seven days after respondent produces any documents ordered produced by the Court granting any part of the petition presently scheduled for hearing on 12/31/09."

On December 15, 2009, the Association's board voted to remove Sack as a director for failing to attend three consecutive board meetings. However, based upon the court's order staying the effect of Sack's removal, the board made the effect of her removal stayed until "the earlier to occur of either: (a) 7 days after the court's ruling at the December 31, 2009 hearing on whether or not to compel access to corporate records; or (b) 7 days after respondents' production of documents if so ordered by the court at the December 31, 2009 hearing on whether or not to compel access to corporate records."

On December 31, 2009, the court heard Sack's petition. The court granted the petition in part, ordering the Association to produce the documents sought by Sack, with the exception of those protected by the attorney-client privilege or work product privilege. The court ordered all nonprivileged documents be produced no later than January 15, 2010. The court also indicated that it was declining to rule upon whether it was proper for Sack to share the produced documents with any other person. The court also extended its stay on the effect of any vote to remove directors to the recall vote to remove all directors, scheduled for January 9, 2010.

Thereafter, the Association appeared ex parte on January 7, 2010, seeking an extension of time to February 5, 2010, to produce the documents in order to give the Association time to review and redact documents and provide a privilege log. The Association also argued that it would be improper to continue the stay as to the removal of Sack from the board, given the pending recall vote scheduled for January 9, 2010, and section 7220, subdivision (b) (section 7220(b)), which, as amended effective January 1, 2010, prohibits a director of a homeowners association from remaining on a board after he or she has been removed.

The court granted the request for an extension to February 5, 2010, but clarified that its stay was still in effect and extended to the January 9 recall vote.

On January 9, 2010, the membership of the Association, consisting of 82 homeowners of Villa Europa, voted to remove the entire board of directors and to elect a new board of directors. However, because of the court's order staying the effect of removal of the directors, the board that was removed by a vote of the membership remained (and remains) in power.

On January 21, 2010, the Association and Jaeschke filed this petition. We issued a stay of the court's December 31, 2009 order, and an order to show cause why the relief requested should not be granted.

DISCUSSION

I. THE COURT HAD NO POWER TO STAY THE EFFECT OF RECALL VOTE

The Association asserts that the court erred in staying the effect of the recall vote as that act was in excess of its jurisdiction. We conclude that the court did act in excess of its jurisdiction in staying the effect of the recall vote, which removed Sack as a director of the Association, as the court had no power to enjoin the effect of such a vote absent a showing it was invalid.

Section 7222, subdivision (a)(2) provides: "(a) Subject to subdivisions (b) and (f), any or all directors may be removed without cause if: [¶] . . . [¶] (2) In a corporation with 50 or more members, the removal is approved by the members (Section 5034)."

Section 7220, subdivision (b) provides: "Unless the articles or bylaws otherwise provide, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, unless the director has been removed from office." (Italics added.)

It is undisputed that as of January 9, 2010, the entire board of directors of the Association, including Sack, was recalled and could no longer remain on the board. Further, Sack did not contend before the trial court, nor does she here, that the recall vote was improper or invalid in any way. Accordingly, as we shall explain, post, the court exceeded its jurisdiction in staying the effect of this valid vote by the Association.

As our Supreme Court has recognized, owners of planned development units "comprise a little democratic subsociety . . . ." (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 374.) In exchange for the benefits of common ownership, the residents elect a legislative/executive board and delegate powers to this board. (Id. at p. 373.) A homeowners association is "`a quasi-government entity paralleling in almost every case the powers, duties, and responsibilities of a municipal government . . .with powers vested in the board of directors, council of co-owners, board of managers, or other similar body clearly analogous to the governing body of a municipality.'" (Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d 642, 651 (Cohen); see also Chantiles v. Lake Forest II Master Homeowners Assn. (1995) 37 Cal.App.4th 914, 922 ["For many Californians, the homeowners association functions as a second municipal government, regulating many aspects of their daily lives."].) Indeed, because of the governmental nature of homeowners associations' actions, the Legislature has required board meetings to be open and allow for members to speak publicly, akin to "California's open meeting laws regulating government officials, agencies and boards." (Damon v. Ocean Hills Journalism Club (2000) 85 Cal.App.4th 468, 475.)

In Cohen, supra, 142 Cal.App.3d at page 652, the Court of Appeal held that the approval of a fence not in conformity with the homeowners association's declaration of restrictions was "analogous to the administrative award of a zoning variance." Because of the quasi-governmental nature of homeowners associations, the Court of Appeal applied California Supreme Court precedent applicable to judicial review of local governments' grants of variances to the homeowners association's fence approval at issue in that case. (Ibid.)

Because of the governmental nature of the actions of homeowners associations, we shall also apply law applicable to municipalities, agencies, boards, and similar governmental bodies when they make a valid vote on a matter before them. Applying this law, we conclude the court acted in excess of its jurisdiction by staying the effect of the January 9 recall vote.

It well settled that "[a] court acts in excess of its jurisdiction if it attempts to enjoin the enactment or enforcement of a valid public statute or ordinance." (Los Angeles v. Superior Court (1959) 51 Cal.2d 423, 430 [superior court had no jurisdiction to enjoin declaration of result of referendum vote favoring valid municipal ordinance]; Agricultural Labor Relations Board v. Superior Court (1976) 16 Cal.3d 392, 401-402 [court without jurisdiction to enjoin effect of valid agency regulation].) When the homeowners of Villa Europa voted to recall the board, and the Association approved that vote, the homeowners association was acting in a quasi-legislative fashion. We conclude that the court had no power to enjoin the effect of an admittedly valid recall vote, which was akin to a vote enacting a valid ordinance, regulation, or other legislated item. Thus, its order staying the effect of the recall vote exceeded its jurisdiction and mandamus lies to set aside that order. (Agricultural Labor Relations Board v. Superior Court, supra, 16 Cal.3d at pp. 401-402).

Sack asserts the Association "invited" any error by the court in staying the effect of the recall vote by requesting an extension of time to produce documents pursuant to the court's December 31, 2009 order. However, the Association only sought additional time to review and redact documents and create a privilege log. It was bound by the court's order to produce documents pursuant to its December 31, 2009 order. It did not request, but rather opposed, the court's orders staying implementation of votes by the Association, and Sack's attempt to use Association records for the mold case, at every step of the proceeding. Moreover, the original due date for production of documents under the court's December 31, 2009 order was January 15, 2010, a date after the January 9, 2010 recall vote. Thus, even if the Association had not requested an extension of time, the recall vote would have occurred before the documents were due to be produced. The Association did not "invite" the court's error.

Sack also asserts the Association has not shown it will suffer irreparable harm if the petition is not granted. However, the court's stay of the recall vote requires a board that has been voted out to remain in power and prohibits the properly elected board from assuming power. Indeed, it would allow Sack, as a board member, access to records the Association has asserted she is seeking to use in an improper manner. Because the Association recalled her, she has no right as a board member to access those records. Finally, as set forth, ante, mandamus relief is appropriate to set aside an act in excess of the court's jurisdiction. (Agricultural Labor Relations Board v. Superior Court, supra, 16 Cal.3d at pp. 401-402.)

II. THE SECTION 8334 PETITION IS MOOT

"[A]lthough a case may originally present an existing controversy, if before decision it has, through act of the parties or other cause, occurring after the commencement of the action, lost that essential character, it become a moot case or question which will not be considered by the court." (Wilson v. Los Angeles County Civil Service Comm. (1952) 112 Cal.App.2d 450, 453; see also Consumer Cause, Inc v. Johnson & Johnson (2005) 132 Cal.App.4th 1175, 1183.)

Once Sack was no longer a board member, her right to access Association records under section 8334 ceased: "`[T]the right of a director [of a nonprofit corporation] to inspect the books and records of the corporation ceases on his removal as a director, by whatever lawful means.'" (Chantiles v. Lake Forest II Master Homeowners Assn., supra, 37 Cal.App.4th at p. 920.) Thus, her section 8334 petition was rendered moot as of that date. (Ibid. [but exercising its discretion in that case to decide an issue of continuing public importance].) The recall vote rendered the court's December 31, 2009 order granting the petition and ordering production of records moot. We therefore grant the Association's request to set that order aside as well.

III. REMAINING ISSUES

Because we have concluded that the court's stay of the effect of the recall vote exceeded its jurisdiction, and Sack, by virtue of that vote, no longer has a right to review records as a member of the board, we need not reach the Association's remaining contentions that (1) allowing Sack access to the Association's records endorses an abuse of the discovery process in the mold case, and (2) the order requiring production of Association records to Sack will result in a breach of Sack's fiduciary duty to the Association.

DISPOSITION

Let a writ of mandate issue directing the superior court to vacate its orders of December 31, 2009, and January 7, 2010, and issue a new order consistent with this opinion. This court's stay order issued January 26, 2010, is vacated. Petitioners shall recover their costs on this petition.

WE CONCUR.

McDONALD, J.

O'ROURKE, J.

Footnotes

1. All further statutory references are to the Corporations Code.

2. The italicized portion was added effective January 1, 2010. (Stats. 2009, ch. 631, § 22.)