Foreclosures: California’s One Action Rule

With interest rates on adjustable mortgages on the way up, the pundits suggest we are headed for another round of foreclosure activity the likes of which we have not seen since the S&L crisis in the 1980s. That makes now a good time to review the laws relating to foreclosure and deficiency judgments—and recent changes that have occurred in that area.

The Legislature enacted the One Form of Action rule—often simply called the One Action Rule—to eliminate multiple actions when a creditor elects to sue after a debtor’s real property has gone into default. It specifically provides: “There can be but one form of action for the recovery of any debt, or the enforcement of any right secured by mortgage upon real property.” (Cal. Code of Civ. Proc. § 726(a).)
In jurisdictions without such a rule, property owners can be forced to simultaneously defend against both a personal action on the debt and a foreclosure action on the security, making it difficult, if not impossible, for the debtor to avoid a deficiency judgment. Not only is this unfair to property owners who reasonably relied on the value of the security for protection from personal liability, but it further strains limited judicial resources.

California’s deficiency-judgment statutes were intended to work in tandem with the One Action Rule to avoid such problems. Because the One Action Rule has the effect of inducing most creditors to foreclose on their security interests before seeking a personal judgment, these statutes protect debtors from a deficiency judgment if the property subject to foreclosure is a dwelling intended to be occupied by four or fewer families—one of which includes the purchaser—and if the loan secured by the deed of trust or mortgage was used to pay all or part of the purchase price of the property being foreclosed. (Cal. Code of Civ. Proc. Code § 580b.)

The purposes behind the One Action Rule and the deficiency-judgment statutes are to prevent multiple actions, compel exhaustion of all security before a deficiency judgment is entered, and ensure that debtors are credited with the fair market value of the secured property before they are subjected to personal liability. (See In re: Prestige Ltd. Partnership-Concord v. East Bay Car Wash Partners, 234 F.3d 1108, 1115 (9th Cir. 2000).)

Deficiency-Judgment Protection

In the years leading up to the S&L crisis, many lenders had substantially relaxed their appraisal standards. Profits were high and the focus was on making loans, not on ensuring that the underlying security was adequate. When properties began to go into default at unprecedented rates, it became obvious that thousands of appraisals were inflated, and countless borrowers were unnecessarily exposed to debt far in excess of the value of their secured real property. In short order, this vicious cycle flooded the pool of Real Estate Owned (REO) properties in lender inventories and ultimately brought down a major industry.

A primary purpose of the antideficiency statutes is to place the risk of such overvaluation and inadequate security on the lenders who stand to profit directly from the loans they make. Taken together, sections 726, 580a, 580b, and 580d of the California Code of Civil Procedure constitute a comprehensive statutory scheme that specifically protects defaulting borrowers from being taken advantage of by overly aggressive lenders who may care more about making loans than protecting borrowers. (See Clayton Dev. Co. v. Falvey, 206 Cal. App. 3d 438, 445 (1988).)

Under this scheme, if the proceeds from the sale of the real property are insufficient to cover the debt, the lender’s right to a deficiency judgment may be limited or barred under one or more of these statutes. (See Prestige, 234 F.3d at 1115.) Thus, the One Action Rule works in concert with California’s deficiency-judgment statutes to give a borrower leverage against a creditor who wants the freedom to choose between either enforcing a security interest via a foreclosure proceeding, or circumventing the antideficiency statutes and suing on the underlying note-whichever better suits its needs. (See Clayton Dev. Co., 206 Cal. App. 3d at 445.)

Exceptions to the Rules
The antideficiency provisions, which primarily aim to protect against overvaluation by lenders, apply automatically only to standard purchase-money transactions. (See Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35, 41 (1963) and Sprangler v. Memel, 7 Cal. 3d 603, 610, and 612 (1972).) Thus, for example, section 580b does not apply when the purchaser intends to proceed with a different use of the property, such as commercial development, because the purchaser controls the success of the venture and should bear the risk of failure.

Section 580b also does not apply when the borrower has refinanced the real property, often to take out additional equity or obtain financing at better terms. (See Union Bank v. Wendland, 54 Cal. App. 3d 393, 400 (1976).) Conversely, when the borrower has never refinanced and the real property is still encumbered by the original purchase-money trust deed, the borrower retains the protection of the antideficiency-judgment statutes. (See Foothill Village Homeowners Ass’n v. Bishop, 68 Cal. App. 4th 1364, 1367 n.1 (1999).)

The Dual Role

For a borrower in default, the One Action Rule offers two important benefits. It may be used upfront as an affirmative defense, or it may be invoked later as a sanction.

If the borrower successfully asserts the One Action Rule as an affirmative defense, the lender will be forced to foreclose its security interest before pursuing a money judgment against the debtor for any deficiency—if that is even possible given the protections available to the borrower under the antideficiency statutes. (See Security Pacific Nat’l Bank v. Wozab, 51 Cal. 3d 991, 997 (1990).)

A borrower who wishes to rely on the antideficiency-judgment statutes to avoid personal liability must raise the One Action Rule as an affirmative defense in the answer or, at the latest, by the start of trial—that is, when the lender would still have a chance to comply with the rule-or he or she is “simply too late.” (See Scalese v. Wong, 84 Cal. App. 4th 863, 868 (2000) and Spector v. National Pictures Corp., 201 Cal. App. 2d 217, 225—26 (1962).)

However, a borrower who fails to assert the One Action Rule as an affirmative defense may still invoke it as a sanction against the lender, because by not foreclosing on its security interest in the action brought to enforce the debt, the lender has made an election of remedies and waived any right to subsequently foreclose on the security or sell the security under a power of sale. (See Security Pacific Nat’l Bank v. Wozab, 51 Cal. 3d 991 at 997 (1990) and Prestige Ltd. Partnership-Concord v. East Bay Car Wash Partners, 234 F.3d 1108 at 1114 (2000).)

Beginning in 1990, the law changed in two important ways. First, the California Supreme Court held that a creditor cannot be subject to the double sanction of losing both the security interest and the underlying debt. Second, a court of appeal held that a creditor could not enforce an agreement with the debtor to waive application of the One Action Rule as a sanction. These decisions have significant ramifications for borrowers and lenders alike.

No Double Sanctions

The landmark case of Security Pacific Nat’l Bank v. Wozab places limits on using the One Action Rule as a sanction. In Wozab the California Supreme Court held that it would be inequitable to subject a lender to the double sanction of losing both the security and the underlying debt. Indeed, the court held that allowing the Wozabs to evade their debt almost in its entirety would be both a gross injustice to the bank and a corresponding windfall to the Wozabs, allowing them the benefit of their bargain without incurring the burden. (51 Cal. 3d at 1005—06.)

Later decisions by the Ninth Circuit Court of Appeals continue to apply the precedent set in Wozab.

In DiSalvo v. DiSalvo, the Bankruptcy Appellate Panel of the Ninth Circuit reversed, in part, a decision that double-sanctioned a creditor’s efforts to collect first on the debt, in violation of section 726, by extinguishing both the security interest in the real property and, indeed, the $100,000 debt itself. (221 B.R. 769, 775 (9th Cir. 1998), overruled in part as to other issues by In re DiSalvo v. DiSalvo, 219 F.3d 1035 (9th Cir. 2000).) Although, as the bankruptcy court observed, the creditor’s actions in attempting to collect the $100,000 debt netted only $83, the creditor controlled the security-first aspect of the One Action Rule and could have invoked it at any time to bar the collection efforts.

Because a bankruptcy court can provide sufficient protection for a debtor whose business is threatened by the actions of a creditor without requiring that the creditor forfeit both the security and the debt, the appellate court held that the bankruptcy court’s sanction of extinguishing the debt was an abuse of discretion “so severe as to be punitive and would result in a windfall to debtor.” (219 F.3d at 1037.)

In Prestige Ltd. Partnership-Concord v. East Bay Car Wash Partners, decided later the same year, the Ninth Circuit was asked to address the issue again in a case in which the debtor sought to bar a creditor’s unsecured claim against his bankruptcy estate. (234 F.3d at 1111 (2000).)

Prestige, the debtor, purchased a car wash business from East Bay, the creditor, giving East Bay a promissory note secured by a deed of trust that included the personal guarantee of one of Prestige’s partners, Jerry Brassfield. After Prestige defaulted on the note, East Bay filed an action on the guaranty rather than foreclosing on its security interest in the car wash. Although Brassfield asserted the One Action Rule as an affirmative defense, East Bay obtained a writ of attachment against $75,000 in Brassfield’s personal bank accounts.

Shortly thereafter, Prestige filed a petition for bankruptcy. The bankruptcy court held that Brassfield was a primary obligor on the note, ” ‘such that the purported guaranty added no additional liability,’ and that East Bay had taken its action under § 726(a), resulting in waiver of its security interest in the real property.” (234 F.3d at 1112.) As a result, the superior court dissolved the writs, and East Bay released its attachment.

Unable to collect against the guaranty and having lost its security interest in the car wash, East Bay filed proof of its now unsecured claim in the bankruptcy action. The bankruptcy court decided in the creditor’s favor, holding that East Bay “lost its security only, not its debt, and was not subject to the provisions of § 580b.” The Ninth Circuit affirmed, citing Wozab and DiSalvo. In reaching its decision, the appellate court noted that Prestige had taken advantage of its right to invoke the sanction aspect of section 726 in the bankruptcy court, resulting in East Bay’s loss of its security interest.

Moreover, just as in Wozab—where the court observed that the debtors had accepted the bank’s reconveyance of the deed and thus acquiesced in, indeed demanded, the bank’s decision not to foreclose—Prestige was the one who sought to have East Bay’s security interest waived. Thus, under the holdings of both Wozab and DiSalvo, it would be inequitable to impose a double sanction that would deny East Bay both its security interest in the car wash and the underlying debt. (234 F.3d at 1115.)

The law is clear: Violating the One Action Rule extinguishes the creditor’s security interest, but not the debtor’s underlying obligations. Thus, after Wozab and its progeny, debtors who are protected by the deficiency-judgment statutes should take care not to waive the One Action Rule lest they lose its protection, yet remain liable “in total” for their debts.

No Waiver of Sanction

In O’Neil v. General Security Corp., the court held that a borrower’s agreement with his lender to waive application of the One Action Rule as a sanction and allow the lender, who had already brought a personal action against the borrower, to proceed with a foreclosure action against the secured property is not enforceable. (4 Cal. App. 4th 587, 598 (1992).)

First, the court held that the sanction aspect of the One Action Rule operates for the benefit of both the primary borrower and third parties claiming an interest in the property, whether as successors-in-interest or as third-party lienholders. As such, the court concluded that the security and priority rights in the secured property held by a third party have independent status, are entitled to independent protections, and cannot be defeated by unilateral waivers by the borrower in favor of the lender. Indeed, the court questioned whether such a waiver agreement would even be enforceable against the borrower who made it.

Second, the court held that all of the lender’s remedies, including foreclosure of the security, merge into and are extinguished by the judgment, limiting the lender’s subsequent remedies to those remedies available to it as a judgment creditor.

Third, the court held that if a borrower’s waiver agreement were enforceable, many of the policies and protections of the statutory scheme would be undermined.

Although the O’Neil decision might trap an unwary lender who pursues a personal judgment first in reliance on the borrower’s agreement to waive the sanction aspect of the One Action Rule, this is not its greatest danger. A bigger problem could arise if a lender secures a single promissory note with deeds of trust on properties located in multiple jurisdictions, one of which is California. If the note goes into default, the lender might want to commence foreclosure actions against its security interests in all jurisdictions simultaneously. However, under California’s One Action Rule, filing a foreclosure action in another jurisdiction before foreclosing the lender’s security in this state could result in the lender losing its security interest in the California property.

In addition, under the holding in O’Neil, an agreement with the borrower to waive the sanction aspect of the One Action Rule following a default would be of no help. Thus, before proceeding with such an arrangement, a prudent lender should carefully consider its exit strategy in the event that the loan goes into default.

Introduction to Receiverships

Receivers are employed in civil cases when absolutely needed to control and protect an entity’s assets. All bench officers and litigants in civil matters employing receivers should have a working knowledge of this area of law.

The objective of this article and self-study test is to provide an introduction to receiverships. Readers will learn about what receiverships are, when they are appropriate, the scope of their powers, and contempt proceedings to enforce their orders.

A receiver is a court officer who is appointed to take possession of and to protect assets for the appointing court for the benefit of all persons who may ultimately be shown to have an interest in those assets. The receiver acts under the court’s control and continuous supervision. See Turner v. Superior Court of Kern County, 72 Cal.App.3d 804 (1977).

California Rule of Court 3.1179 states that, “The receiver is an agent of the court, not of any party to the litigation, 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, not the plaintiff nor the defendant.”

A receiver may be appointed, in the manner provided in Code of Civil Procedure Section 564 et seq., by the court in which an action or proceeding is pending in any case in which the law empowers the court to appoint a receiver. Code of Civil Procedure Section 564(a). Unlike an injunction, which may be either provisional or permanent, a receivership is only a provisional remedy in an action that seeks some other relief by final judgment.

There is no substantive right to a receiver and no action for a receiver. Associated Creditors’ Agency v. Wong, 216 Cal.App.2d 61 (1963). As the court said long ago in French Bank Case, 53 Cal. 495 (1879): “these subdivisions do not assume to create a sense of the right of action where none existed before. Their aim is to provide a more efficacious remedy to the conduct of actions, the right to bring which already exists, and are elsewhere provided for…. There is, of course, no such thing as an action brought distinctively for the mere appointment of a receiver – such an appointment, when made, is ancillary to or in aid of the action brought. Its purpose is to preserve the property pending the litigation so that the relief awarded by the judgment, if any, may be effective. The authority conferred upon the court to make the appointment necessarily presupposes that an action is pending before, instituted by someone authorized by law to commence it.”

A receiver can be appointed only when authorized by statute or equity. March v. Williams, 23 Cal.App.4th 238 (1994). Code of Civil Procedure Section 564 is the primary statutory authorization.

The most commonly relied upon provisions in Section 564 are ones authorizing a receivership, “In an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to the creditor’s claim, or between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or of any party whose right to or interest in the property or fund, or the proceeds thereof, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured” (Code of Civil Procedure Section 564(b)(1)); “In an action by a secured lender for the foreclosure of a deed of trust or mortgage and sale of property upon which there is a lien under a deed of trust or mortgage, where it appears that the property is in danger of being lost, removed, or materially injured, or that the condition of the deed of trust or mortgage has not been performed, and that the property is probably insufficient to discharge the deed of trust or mortgage debt” (Code of Civil Procedure Section 564(b)(2)); and “Where a corporation is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights” (Code of Civil Procedure Section 564(b)(6)).

There are many other specific statutory authorizations throughout the Codes. Examples include: Code of Civil Procedure Section 564(c) (to enable a secured lender to inspect real property for hazardous substances); Code of Civil Procedure Section 708.630(b) (to transfer alcoholic beverage license to satisfy money judgment); Family Code Section 290 (family law cases); and Code of Civil Procedure Section 712.060 (to enforce judgment for possession or sale of property). Receivers also are appointed in post-judgment proceedings to aid in collection efforts for judgment creditors. (Code of Civil Procedure Section 564(b)(3).)

Code of Civil Procedure Section 564(b)(9) also reemphasizes the court’s equitable power to appoint a receiver by providing that one may be appointed “In all other cases where necessary to preserve the property or rights of any party.” Equity receiverships are often instituted by an action brought by a governmental regulatory agency, with the result that the receiver takes possession of all assets for the benefit of all creditors. This type of receiver can be likened to a bankruptcy trustee.

The appointment of a receiver can be a very effective way to protect assets in many types of disputes, pending the outcome of litigation. Nonetheless, appointment of a receivership is a drastic remedy, wresting control of property from the owner’s hands. Thus, “ordinarily if there is any other remedy, less severe in its results, which will adequately protect the rights of the parties, the court should not take property out of the hands of its owners.” Alhambra-Shumway Mines Inc. v. Alhambra Gold Mine Corp., 116 Cal.App.2d 869 (1953). “California rigidly adheres to the principle that the power to appoint a receiver is a delicate one which is to be exercised sparingly and with caution.” Morand v. Superior Court, 38 Cal.App.3d 347 (1974).

The appointment, or the refusal to appoint a receiver, is within the discretion of the trial court. “The rule is established that the appointment of receiver rests largely in the discretion of the trial court and that its action and appointing a receiver or its refusal of an application for the appointment of such an officer will not be disturbed in the absence of a showing that the court’s discretion has been abused.” City and County of San Francisco v. Daley, 16 Cal.App.4th 734 (1993).

Unless the parties file a written consent, a receiver may not be a party, an attorney of a party, a person interested in the action, or a person related to any judge of the court by consanguinity or affinity within the third degree. Code of Civil Procedure Section 566.

The receiver “must be sworn to perform the duties faithfully.” Code of Civil Procedure Section 567(a). The receiver must give an undertaking to the State of California “in such sum as the court or judge may direct.” Code of Civil Procedure Section 567(b).

The receiver’s powers are those specified in the applicable statutes and court orders. The primary source of the receiver’s powers are the court’s orders. See Nulaid Farmers Ass’n v. LaTorre, 252 Cal.App.2d 788 (1967). Because the appointing order is so significant, it should be carefully drafted so as to anticipate the powers and instructions that the receiver may require. The Judicial Council has promulgated form receivership orders for equity and rents-and-profits receiverships. The forms are not mandatory and many receivers and attorneys prefer to use non-form orders.

Typical provisions in an appointing order include the following: the receiver’s power to employ employees and professionals; the receiver’s power to operate and/or liquidate a business; the receiver’s power to enter into contracts or leases; the receiver’s authority to use a locksmith to enter the receivership premises; the receiver’s authority to bring and defend actions; the receiver’s obligation to investigate, report about, and maintain adequate insurance coverage regarding the receivership estate; a provision regarding payment of the receiver’s fees and costs, as well as the fees and costs of other professionals employed by the receiver; and, a provision that the receiver may sell real or personal property of the estate. Code of Civil Procedure Section 568.5. Note that a receiver may not employ an attorney without a specific court order authorizing such employment. California Rule of Court 3.1180.

The court’s order further sets forth the compensation due to the receiver and the frequency of reports he or she must submit to the court regarding the entity it is protecting.

A court order is required to terminate a receivership. Upon court approval of the receiver’s final report and account, the receiver is discharged and his or her bond exonerated. California Rule of Court 3.1184. The court’s order terminating the receivership bars subsequent action against the receiver by all parties who received notice, for the receiver’s failure to properly perform duties. Aviation Brake System Ltd. v. Voorhis, 133 Cal.App.3d 230 (1982).

Receivership orders are enforceable through contempt proceedings. In general, disobedience of receivership orders has increased in recent years, and contempt proceedings in receivership cases has become a more frequent occurrence. When there has not been compliance with a court order, a receiver must consider whether it is appropriate to institute a contempt action.

The contempt proceeding is initiated by the filing of evidentiary affidavits (or declarations) Code of Civil Procedure Section 1211, together with an application for the issuance of an order to show cause. These documents detail the violations of the court’s orders, and must be personally served on the alleged contemnor. Every separate act of disobedience of a court order is a separate contempt and punishable as such. In re Stafford, 160 Cal.App.2d 110 (1958).

There are four elements that must be proved to establish a contempt violation: the issuance of a valid court order; the contemnor’s actual knowledge of the order; the contemnor’s ability to comply with the order; and the contemnor’s willful disobedience of the order. See Conn v. Superior Court, 196 Cal.App.3d 774 (1987).

A common contempt application in a receivership case involves a defendant who fails to turn over funds to the receiver in compliance with a court order. In order to establish a contempt claim in such a case, the receiver must prove that the defendant had funds to turn over to the receiver. It is not enough to simply prove that the defendant disobeyed the order to turn over funds to the receiver. In re Cassil, 37 Cal.App.4th 1081 (1995).

Unlike civil proceedings such as receivership hearings, a contempt proceeding is quasi-criminal. The alleged contemnors are presumed innocent and all of the elements of contempt alleged against the contemnors must be proved beyond a reasonable doubt rather than by a mere preponderance of the evidence. Bennett v. Superior Court, 73 Cal.App.2d 203 (1946). Perhaps most importantly, the alleged contemnor has the right against self-incrimination, and cannot be compelled to testify. In re Witherspoon, 162 Cal.App.3d 1000 (1984). Thus, a receiver (or a party) bringing a contempt action must be able to prove each element to establish the contempt violation without any testimony by the alleged contemnor.

A person guilty of contempt may be fined $1,000 and imprisoned for 5 days for each contempt violation. Code of Civil Procedure Section 1218(a). Imprisonment for contempt is rare. The fines are paid to the state of California, and not to the receivership estate.

A party to an action who is found in contempt may be ordered to pay to the party initiating the contempt proceeding the reasonable attorneys’ fees and costs incurred by the party in connection with the contempt proceeding. Code of Civil Procedure Section 1218(a). These fees and costs usually exceed the statutory fines that are available. Judges are usually willing to award these fees and costs if they are requested. They are not available against non-parties.


Accommodating for Disabilities

What happens when a blind tenant with a seeing-eye dog tries to move into an apartment complex with a strict “no pets” policy?  What if a tenant who walks with difficulty wants a reserved parking space next to her apartment, but she is at the bottom of the waiting list for spaces?  What are the options for a tenant who is being evicted for minor damage he caused to his apartment when he had an emotional breakdown?  These are among the situations when tenants with disabilities can request “reasonable accommodations.”

Perhaps the tenant walked into your office.  Or the landlord just received one of these requests and asks you what to do.  Or maybe you have a long-time client who is a property owner and wants to be updated on the latest legal developments.  In any of these situations, you will need to know what an accommodation is, who is entitled to one-and how to determine whether such a request is reasonable.

Reasonableness Defined
A reasonable accommodation is defined by the fair housing laws as a change in the landlord’s rules, policies, or practices that is necessary to afford a person with a disability an opportunity to use and enjoy a dwelling.  (Fair Hous.  Amendments Act (FHAA), 42 U.S.C. § 3604(f)(3)(B); Cal. Fair Emp. and Hous.  Act (FEHA), Cal. Gov’t Code §§ 12927(c)(1), 12955.) But applying these laws is often difficult.

The Dance of Analyzing a Request
The five factors in the acronym DANCE encapsulate the elements of an accommodation case as outlined by the Ninth Circuit in the Mobile Home Park cases.  (United States v. California Mobile Home Park Mgmt., 29 F.3d 1413 (1994), appeal after remand, 107 F.3d 1374 (1997).) And in truth, the back and forth interaction between a tenant and landlord regarding accommodation requests often resembles a dance.

“D” is for disability.  To qualify for an accommodation, a tenant must have a disability-a mental, developmental, or physical impairment that substantially limits one or more major life activities, such as walking, seeing, hearing, working, learning, or caring for himself or herself.  (42 U.S.C. § 3602(h); Cal. Gov’t Code § 12955.3.) This includes all recognized mental health conditions, including personality disorders.  (United States v. Massachusetts Indus. Fin. Agency, 910 F. Supp. 21 (D. Mass. 1996).) The statutes protect those with alcoholism and past, but not current, drug addiction.  This statutory distinction leads to confusion over the timing of “past” and “current” drug use.  The few courts that have addressed the issue offer a little guidance: a year ago is past, six weeks ago is considered current.  (United States v. Southern Mgmt. Corp., 955 F.2d 914 (4th Cir. 1992); Fowler v. Borough of Westville, 97 F. Supp. 2d 602 (D.N.J. 2000).) Perhaps future litigation will specify a magic line somewhere in the middle.

A landlord who doubts that a tenant requesting the accommodation has a disability has an obligation to affirmatively ask for verification.  (Hubbard v. Samson Mgmt. Corp., 994 F. Supp. 187 (S.D.N.Y. 1998).) This is an exception to the general fair housing rule that housing providers may not ask any questions about whether an applicant or tenant has a disability.  (24 C.F.R. § 100.202(c).) As verification, housing providers can accept a doctor’s note stating the tenant’s condition is a disability, unless there are clear reasons to question the note.

“A” is for accommodation request.  To trigger these fair housing law requirements, a tenant must communicate to the housing provider the need for an accommodation because of some medical condition.  The tenant need not use the magic words “reasonable accommodation,” nor even make the request in writing, though a written request is wise.  In one case, for example, a tenant told the manager that he did not have to get rid of his cat because he was disabled, which was found to be sufficient notice for the landlord to begin the accommodation evaluation.  (HUD v. Dutra, 1996 WL 657690 (HUD ALJ 1996).) However, the landlord is not required to guess that the tenant needs an accommodation.  (See, HUD v. Courthouse Square Co., 2001 WL 953792 (HUD ALJ 2001).)

The request must be a change to rules or practices.  If the tenant is requesting a physical change to his or her apartment, that is a “modification,” not an accommodation.  Although the analysis is similar, in private housing, the tenant must pay the cost of the modification and restore the premises at the end of the tenancy if the modification would make the apartment less marketable.  (42 U.S.C. § 3604(f)(3)(A); Cal. Gov’t Code § 12927(c)(1).) Debate continues about when a physical change to the common areas of the complex is an accommodation and when it is a modification.  But courts have ruled that physically marking a handicapped parking space is an accommodation.

“N” is for necessary.  The tenant must need the accommodation because of his or her disability.  There must be a causal nexus between the symptoms of the disability and the accommodation requested-and many plaintiffs have lost their cases by not making this connection clear.  (Gavin v. Spring Ridge Conservancy, Inc., 934 F. Supp. 685 (D. Md. 1995) (plaintiff did not show why a normal-size shed was insufficient to house his medical supplies nor why he needed a bigger shed as an accommodation).)

“C” is for cost.  An accommodation that imposes an undue financial or administrative burden on the landlord is not deemed reasonable.  (Green v. Housing Authority, 994 F. Supp. 1253 (D. Ore. 1998).  The key word here is “undue,” which will be different for a huge corporate-owned complex than for a “mom and pop” fourplex. For example, one court found that requiring a landlord to replace an elevator, which would cost a minimum of $25,000, was not reasonable. (Rodriguez v. 551 West 157th Street Owners Corp., 992 F. Supp. 385 (S.D.N.Y. 1998).) However, the Ninth Circuit has made clear that landlords must absorb reasonable costs. (Giebeler v. M&B Associates, 343 F.3d 1143, 1152 (9th Cir. 2003).

“E” is for effecting a fundamental change. An accommodation that would require a landlord to fundamentally alter the nature of his or her business is not reasonable. For example, a landlord who does not want to participate in government programs may not be required to accept Section 8 certificates as an accommodation because that would fundamentally change the nature of the landlord’s housing business. (Salute v. Stratford Greens Garden Apts., 918 F. Supp. 660 (E.D.N.Y. 1996), aff’d, 136 F.3d 293 (2nd Cir. 1998).

If a tenant has a disability, has made an accommodation request, and has demonstrated that the accommodation is necessary, and the landlord cannot show that the accommodation would impose an undue cost or effect a fundamental change, the landlord must grant the accommodation. Failing to grant an accommodation that meets all these requirements constitutes illegal discrimination. If the accommodation requested does not meet all the requirements-if it costs too much, for example-the landlord should inform the tenant why it is being denied, so the tenant can propose an alternate, less costly accommodation. This is the accommodation dance.

Examples of Accommodations
In the years since these requirements have existed, the courts have addressed only some of the potential accommodation scenarios. A number of courts have considered claims relating to accommodations for service animals. (Green v. Hous. Auth., 994 F. Supp. 1253 (D. Or. 1998); Bronk v. Ineichen, 54 F.3d 891 (7th Cir. 1996); see also, 24 C.F.R. § 100.204(b).) Because of the relatively small impact on the landlord, courts have continually required landlords to make exceptions to “no pet” policies to allow service animals. Service animals include not only seeing-eye dogs, but also companion animals that provide emotional support to people who have mental disabilities. (Majors v. Hous. Auth., 652 F.2d 454 (5th Cir. 1981); Whittier Terrace Assoc. v. Hampshire, 532 N.E.2d 712 (Mass. App. 1989).

Parking spaces are another hot topic. Landlords are often uncertain of their options when a disabled person who needs a space is lower on the waiting list than nondisabled tenants who may have been waiting for years. However, the law is clear that landlords must move the disabled person who needs the space to the top of the waiting list. (Shapiro v. Cadman Towers, 844 F. Supp. 116 (E.D.N.Y. 1994); see also, Jankowski Lee & Assoc. v. Cisneros, 91 F.3d 891 (7th Cir. 1996); 24 C.F.R. § 100.204.) Not having a close space is a mere inconvenience for the nondisabled tenant; however, it is often an insurmountable barrier for the disabled tenant.

The Ninth Circuit has recently addressed accommodations relating to financial consequences of a disability. In Giebler v. M&B Assoc., a disabled applicant receiving Social Security disability benefits did not meet the landlord’s “three times the rent” income requirement despite a good rental payment history. (343 F. 3d 1143, 1145 (2003).) He requested that his financially qualified mother be allowed to co-sign as an accommodation of his disability, which the landlord refused to do. On appeal, the Ninth Circuit found that Giebler’s inability to meet the income requirement was directly caused by his disability because he would have met the minimum requirements based on his predisability income. The court referred to a recent U.S. Supreme Court case, U.S. Airways v. Barnett (535 U.S. 391 (2002)), holding that barriers for both disabled and nondisabled people, such as seniority systems, can be the subject of reasonable accommodations under the Americans With Disabilities Act or ADA (42 U.S.C. § 12182). Though this decision somewhat expands the necessity “nexus” discussed previously to include needs stemming from the financial consequences of being disabled, the reasonableness factors remain. Giebler had a proven rental payment history and was offering the landlord additional security of a co-signor with little cost required. On the other hand, courts are very unlikely to require a landlord to lower rent as an accommodation for a tenant on disability benefits.

The accommodation issue may also arise when a tenant is being evicted for behavior related to his or her disability. In one case, for example, a person with schizophrenia had hallucinations and, as a result, hit the wall repeatedly with a broomstick, causing minor damage. (Citywide Assocs. v. Penfield, 2 FH-FL 18,079 (Mass. Hous. Ct. 1989).) The landlord, who normally evicts tenants who cause this kind of damage, proceeded with an eviction. The tenant explained that the damage was caused by the symptoms of her disability and agreed to participate in a new counseling program. The court determined that the landlord must make an accommodation by stopping the eviction. Tenants whose behavior seriously disturbs neighbors will be eligible for accommodations only if they can show that the disturbance has stopped or will be ameliorated.

The FHAA specifically states that housing providers are not obliged to rent to tenants who pose direct threats of harming people or causing substantial property damages. (42 U.S.C. § 3604(f)(9).) However, the courts have held that landlords must consider accommodations for all behavior caused by a disability, even threats or violence. (Roe v. Hous. Auth., 909 F. Supp. 814 (D. Colo. 1995); Roe v. Sugar River Mills Assoc., 820 F. Supp. 636 (D.N.H. 1993).) At the same time, the greater the harm caused by the behavior, the greater the assurances of change must be in order before the accommodation will be considered “reasonable.”

The Long Reach of the Law
Any part of the application procedure, tenancy, or eviction process can be the subject of a reasonable accommodation request. Although the statutory language refers to accommodations that allow the tenant to “use and enjoy the dwelling,” accommodations have repeatedly been considered valid even when a tenant is moving out of an apartment. Courts have sanctioned accommodations such as releasing a tenant from a lease early (Samuelson v. Mid-Atlantic Realty, 947 F. Supp. 756 (D. Del. 1996)), or postponing an eviction action (Anast v. Commonwealth Apts., 956 F. Supp. 792 (N.D. Ill. 1997).

Also, a tenant can bring up an accommodation request at any time in the eviction process. If a landlord knows of a tenant’s disability and need for accommodation before the tenant is physically evicted-even if a notice to vacate has already been given-the landlord must consider the accommodation. (Radecki v. Joura, 114 F.3d 115 (8th Cir. 1997).)

Because accommodations depend on the specific symptoms of a tenant’s disability and the requirements of the housing, no exhaustive list is possible. For example, courts have required landlords to give tenants with disabilities more time to comply with fire code requirements (Schuett Inv. Co. v. Anderson, 386 N.W.2d 249 (Minn. App. 1986)); to move disabled tenants to first floor apartments (Roseborough v. Cottonwood Apts., 1996 WL 490717 (N.D. Ill. 1996)); and to keep sidewalks clear of snow for the safety of the disabled tenant (Lindsey v. Nob Hill Partnership, 539 N.W.2d 134 (Wis. Ct. App. 1995).)

The main two laws in this area are the federal Fair Housing Amendments Act (42 U.S.C. § 3601) and California’s Fair Employment and Housing Act (Cal. Gov’t Code § 12955). There is also a California statute specifically addressing accommodations (Cal. Civ. Code § 54.1) and federally funded housing providers are also covered by Section 504 of the Rehabilitation Act (29 U.S.C. § 794).

Looking at these laws in combination, almost all landlords or lessors are required to make reasonable accommodations. The only exception is for owners who rent out only one room in a house they occupy. (Cal. Gov’t Code § 12927(c)(2)(A).) Condominium homeowners’ associations and mobile home parks are also obligated to make reasonable accommodations, even when the accommodation may violate an association’s covenants or affect commonly owned areas of the property. (Gittleman v. Woodhaven Condo. Ass’n, 972 F. Supp. 894 (D.N.J. 1997).)
People who run some types of organizations-for example, residential drug treatment, transitional housing programs, board and care facilities-feel that they are providing services rather than housing. However, because of the fair housing statutes’ broad definition of “dwelling,” almost anywhere that a person spends the night is covered. (42 U.S.C. § 3602(b); Cal. Gov’t Code § 12927(d).) This includes nursing homes (Hovsons v. Township of Brick, 89 F.3d 1096 (3rd Cir. 1996)); homeless shelters (Turning Point v. City of Caldwell, 74 F.3d 941 (9th Cir. 1996), and timeshares (Louisiana ACORN Fair Housing v. Quarter House, 952 F. Supp. 352 (E.D. La. 1997).)

Some housing providers worry that granting a requested accommodation will get them in trouble with government authorities, such as code enforcement agencies, zoning boards, HUD, or fire inspectors. These landlords feel that they are stuck between the proverbial rock and hard place. However, these governmental agencies are obligated under the both the fair housing laws and the ADA to themselves make accommodations. A landlord may ask for an accommodation from these agencies on behalf of disabled tenants and has standing to sue if he or she is harmed by the denial of the accommodation. (San Pedro Hotel v. City of Los Angeles, 159 F. 3d 470 (9th Cir. 1998).)

Litigation Strategy
Reasonable accommodation cases present a perfect opportunity for preventive work. Landlords with written accommodation policies and procedures rarely find themselves in trouble. Attorneys who are consulted early can advise their clients about what accommodations to offer before irreparable harm occurs.

Within one year of an accommodation denial, tenants can file administrative claims with HUD’s fair housing office or the Department of Fair Employment and Housing (DFEH). These agencies investigate claims, attempt conciliation, and, if discrimination is found, proceed to enforcement-typically a hearing before an administrative law judge. The administrative processes provide ample opportunities for negotiation, especially since the investigation stage can be quite lengthy. However, unlike employment discrimination claims, filing with an administrative agency is not an exhaustion requirement before litigation. Notably, the California Supreme Court recently decided that DFEH has the authority to award emotional distress damages without running afoul of the judicial powers clause. (Konig v. FEHC, 28 Cal. 4th 743 (2002).)

Of course, some accommodation cases will proceed to litigation. The statute of limitations for both FHAA and FEHA is two years-with an open question about whether the two years is from the first time or the last time the request is made. The statute is tolled for any time a claim was with HUD or DFEH. In reality, these cases are almost never resolved by a motion to dismiss because of the requirement of the highly factual “reasonableness” determination. For the same reason, defendants’ summary judgment motions require strong evidentiary support that one of the necessary elements is absent.

At trial, the parties must present evidence regarding the elements described above. Clearly, the plaintiff must prove that he or she has a disability and therefore needs the accommodation requested. The Ninth Circuit has recently shed more light on the unresolved issue of which party bears the burden regarding an accommodation’s reasonableness. Depending on whether a court follows precedent of Section 504 of the Rehabilitation Act or the ADA, the plaintiff bears the initial burden of showing that the accommodation either is possible (Section 504) or seems reasonable on its face (ADA). (Giebeler, 343 F.3d at 1156.) If the plaintiff meets this burden, the defendant bears the burden of showing that the accommodation is not reasonable in the particular case.

If an accommodation case proceeds to judgment for the plaintiff, damages can include injunctive relief and compensatory damages-including emotional distress, as well as punitive damages, and attorney fees. (42 U.S.C. § 3613.) As with other civil rights statutes, the attorney fee provision is not reciprocal.


Unlawful Detainer

Unlawful detainer is a narrowly tailored procedure designed to expeditiously resolve landlord-tenant disputes involving right to possession of rental property. The primary purpose of unlawful detainer cases is to determine the right to possession of rental property, forfeiture of the lease or rental agreement, and secondarily, to determine any past due rent and damages for the tenant’s “holdover.”

The objective of this article and self-study test is to introduce attorneys and bench officers unfamiliar with this procedure to common issues relating to the trial of these cases.

Unlawful detainer trials are given precedence in trial setting. The right to an expedited hearing is part of the statutory scheme that replaced the common law rights and remedies of landlords, which included the right to enter and expel the tenant by force. Childs v. Eltinge, 29 CA3d 843 (1973).

Either the plaintiff or the defendant can request that the case be set for trial by filing the Judicial Council form UD-150. Code of Civil Procedure Section 1179a. The trial must be held not later than the 20th day following the date that the request to set the time of the trial is made. Code of Civil Procedure Section 1170.5(a).

The court may extend the period for trial upon the agreement of all parties. Code of Civil Procedure Section 1170.5(a). But, if the plaintiff does not agree to a continuance, the court may condition any continuances on the defendant paying rent into an escrow account for so long as the defendant remains in possession pending the termination of the action. This must be based on the court “finding that there is a reasonable probability that the plaintiff will prevail in the action.” Code of Civil Procedure Section 1170.5(c).

Unless good cause is shown, an extension of time for trial may not exceed 10 days without the consent of the adverse party. Code of Civil Procedure Section 1167.5.

The availability of preferential trial setting is eliminated if the defendant no longer occupies the property. Once possession of the property has been delivered to the lessor, the unlawful detainer proceeding converts to an ordinary civil action for damages. Code of Civil Procedure Section 1952.3.

The parties to an unlawful detainer case have the right to a jury trial unless jury is waived. Code of Civil Procedure Sections 1171 and 631. A party waives the right by failing to appear at trial; by written consent filed with the clerk or judge; by oral consent, in open court, entered in the minutes; by failing to demand a jury within five days after notice of setting; by failing to deposit with the clerk or judge advance jury fees; or by failing to deposit jury fees on the second and subsequent trial days. Code of Civil Procedure Section 631(d).

In a regular civil case, the advance jury fee deposit must be made at least 25 calendar days before the date initially set for trial. In unlawful detainer cases, however, the fees must be deposited at least five days before the date set for trial. Code of Civil Procedure Section 631(b).

An eligible party can obtain a waiver of jury fees, among other costs, by submitting an application and order to the court. Government Code Sections 68630 et seq; California Rules of Court 3.50 et seq. An order waiving jury fees may not, however, relieve a party from the requirement of posting advance jury fees, to avoid waiving the right to a jury trial. Code of Civil Procedure Section 631.1.

The court may, in its discretion, grant relief from the waiver of a jury trial. Code of Civil Procedure Section 631(e). Ordinarily, a court grants relief from a waiver if the opposing party has not suffered prejudice. The mere fact that trial will be by jury is not prejudice per se. Johnson-Stovall v. Superior Court, 17 CA4th 808 (1993).

Rental agreements may provide for waiver of the right to a jury trial or arbitration. But these provisions were declared to be unenforceable by the state Supreme Court in Grafton Partners v. Superior Court, 36 C4th 944 (2003).

The most common unlawful detainer action concerns failure to pay rent. The landlord has the burden of proving by a preponderance of the evidence the following: (1) the landlord owns the property; (2) the landlord rented the property to the tenant; (3) under a written or oral rental agreement, the tenant agreed to pay rent in a specified amount; (4) the landlord properly gave three days’ written notice to pay the rent or vacate the property (or that the tenant actually received the notice at least three days before the date on which the action was filed); (5) as of the date of the three-day notice, at least the amount stated in the notice was due; (6) the tenant did not pay or attempt to pay the amount stated in the notice within three days after service or receipt of the notice; and (7) the tenant is still occupying the property. Code of Civil Procedure Sections 1161 and 1952.3(a); CACI 4302.

Failure to pay rent is not the only ground on which an unlawful detainer action may be brought. An unlawful detainer action may be brought for violating other terms of a lease or rental agreement. Code of Civil Procedure Section 1161(3). California follows the Restatement of Contracts rule that the breach must be “material,” “substantial,” or “total” to justify a termination. Whether the violation is of such a nature is a factual issue for the jury. Superior Motels Inc. v. Rinn Motor Hotels Inc., 195 CA3d 1032 (1987).

An unlawful detainer action may also be brought for “assigning or subletting or committing waste upon the demised premises, contrary to the conditions or covenants of his or her lease, or maintaining, committing, or permitting the maintenance or commission of a nuisance upon the demised premises or using the premises for an unlawful purpose….” Committing defined acts of domestic violence, sexual assault, or stalking against another tenant or subtenant on the premises creates a rebuttable presumption affecting the burden of proof that the person has committed a nuisance upon the premises. Code of Civil Procedure Section 1161(4). Local rent control laws may include certain conduct in the category of “nuisance.” See Los Angeles Rent Stabilization Ordinance Section 151.09(A)(3), including gang, weapon, and drug-related activities. An unlawful detainer action based on waste, nuisance, or using the premises for an unlawful purpose terminates the lease and allows service of a three-day notice to quit, not to cure or quit. Code of Civil Procedure Section 1161(4).

The landlord must prove that proper notice was given, and that the appropriate time period expired before the lawsuit was brought. “Giving proper notice” may be a trial issue, based on the content of the notice and the method of service. Insufficiency of the evidence on either point can be fatal to the landlord’s case.

A three-day notice to quit is used when the tenant has allegedly breached a covenant in the lease that cannot be cured. A three-day notice to perform a covenant or quit is used when the breach is capable of being cured, such as removing a pet when pets are prohibited under the rental agreement. Code of Civil Procedure Section 1161(2)-(3).

The most common notice is the three-day notice to pay rent or quit. For residential tenancies, the notice must state “the amount which is due,” as well as other payment information. If the rent due is overstated, the notice is ineffective and will not support an unlawful detainer action. Levitz Furniture Co. v. Wingtip Communications Inc., 86 CA4th 1035 (2001). Rent may be overstated if the rent was raised in violation of local rent control laws. Nourafchan v. Miner, 169 CA3d 746 (1985). Further, the notice may only be served within one year after the rent becomes due. Code of Civil Procedure Section 1161(2).

These are not mere technical requirements. The requirement that the notice not overstate “the amount which is due” is to discourage the landlord from claiming an overdue rental figure that is so exaggerated that a tenant would choose not to pay and would just leave. As the appellate court held in Levitz Furniture Co. v. Wingtip Communications Inc., under the one-year requirement is to prevent a landlord from unfairly sitting on her rights when rent is unpaid at some point in the rental relationship, and then using long-overdue rent to effect an eviction.

A 30-day notice to quit is used when the tenant is renting on a month-to-month basis, or is holding over after a longer term lease has expired. Code of Civil Procedure Section 1161(5); Civil Code Section 1946. Cause for such an eviction need not be proved, unless federal regulations or a local ordinance provides otherwise. Civil Code Section 1946.

As for service of the notice, this again is no mere technicality. Code of Civil Procedure Section 1162 provides for three methods of service: personal delivery to the tenant; substituted service – leaving a copy with an appropriate person if the tenant is not there and mailing a copy; or “affixing” a copy in a “conspicuous place on the property” if substituted service cannot be made and mailing a copy. This last method is commonly referred to as “nail and mail.”

Service of the notice is a condition precedent to maintaining an unlawful detainer action. When the fact of service is contested, the landlord may not rely on the affidavit of service; the testimony of the person who made the service is required. Liebovich v. Shahrokhkhany, 56 CA4th 511 (1997).

Certain affirmative defenses are available to the tenant in an unlawful detainer case. As with affirmative defenses generally, the defendant has the burden of proof by a preponderance of the evidence. Evidence Code Sections 115, 500.

The most common affirmative defense is breach of the warranty of habitability, which is available only in a case based on nonpayment of rent. The defendant has the burden of proving that the landlord has not maintained the property in a habitable condition during the period for which rent was not paid. The obligation to put rental units into a condition fit for the occupation of human beings, and to repair all subsequent dilapidations thereof that render it untenantable, is codified in Civil Code Section 1941. Civil Code Section 1941.1 sets out several affirmative standard characteristics, the substantial lack of which cause a residential unit to be “untenantable.” To constitute a defense, the breach of the warranty of habitability must be “substantial.” Code of Civil Procedure Section 1174.2.

If the defense is proved, a conditional judgment is entered, where possession of the premises is denied to the landlord and the tenant is adjudged to be the prevailing party, conditioned upon the payment by the tenant of the reasonable rental value of the premises in its untenantable state to the date of trial within a reasonable period of time not exceeding five days from the date of the court’s judgment or service thereof. The court may order the landlord to make repairs and correct the conditions that constitute a breach of the landlord’s obligations, order the monthly rent to be so limited until the repairs are completed, and award the tenant costs and, if awardable by statute or contract, attorney fees. The court retains jurisdiction for the purpose of ensuring compliance. If the tenant fails to timely pay all rent accrued to the date of trial, however, the court must award possession of the premises to the landlord. Code of Civil Procedure Section 1174.2.

The fact that the tenant continues to live in the premises is not a waiver of the warranty of habitability as a matter of public policy. Knight v. Hallsthammar, 29 C3d 46 (1981). However, a tenant who substantially contributes to the existence of an untenantable condition cannot claim relief for breach of the warranty. Civil Code Section 1941.2.

A somewhat related defense is the “repair and deduct” defense. This defense is available if the tenant paid for repairs himself after giving the landlord a reasonable period of time to do so. The tenant is entitled to deduct these amounts from the rent, and a notice that includes these sums would be overstated. Civil Code Section 1942.

Another affirmative defense is retaliatory eviction, which has both a common law and a statutory basis. Civil Code Section 1942.5. This defense applies when the landlord seeks eviction when the tenant has engaged in legally protected activities. The tenant must be current on rent payments.


Entity Rule

California subscribes to the “entity rule,” which provides that when a lawyer or a property manager, acting as a managing agent of an association, represents an organization, the organization is the client, not the organization’s constituents. Therefore, the organization holds the attorney-client privilege or the managing agent –client fiduciary duty, not its constituents or any individual officer or director. The purpose of the rule is to enhance the lawyer’s or managing agent’s ability to represent the best interests of the organization without having the additional and potentially conflicting burden of representing the organization’s constituents.

Hiring a Handyman

By definition, a handyman is like a human Swiss Army knife – a convenient way to efficiently accomplish a variety of tasks.  Always cheaper than hiring a contractor, a handyman represents a budget-saving alternative; helping to keep maintenance costs for the community association lower and, at least at first blush, being a task-accomplishing hero to cost-conscious board members and the owners they represent. As enticing as it is to go to Craigslist or Angie’s List to hire a handyman, is it a fiscally responsible business decision for a board of directors?  Or does hiring a contractor simply create a heightened exposure for their community?

There are many eye-opening considerations:

Handymen are typically unlicensed.

In California, there is no “handyman” classification available through the State’s Contractors State Licensing Board (CSLB).  The absence of a license is problematic for both the individual and the association.  If the total value of the construction work being performed meets or exceeds $500 (for both labor and materials), a license is required.  Penalties for an individual contracting without a license can range from a warning letter to jail time, depending on the severity of the offense.   For the condominium association, inadvertently hiring an unlicensed contractor (an individual performing a task for which a license is required) means that there are fewer remedies if things go wrong.   The State CSLB will not step in and resolve any dispute should the association be dissatisfied.   Furthermore, should litigation ensue, a contractor’s license helps to establish an “independent contractor” relationship which may help insulate a board of directors for the individual’s actions.

Many handymen have no liability coverage.

If there is any property damage or bodily injury that results from a handyman’s activities, it is unlikely the handyman would have liability coverage to address the resulting claim/lawsuit. By comparison, commercial general liability coverage, which is typically maintained by licensed contractors, provides two distinct benefits:  (1) an association can request to be named as an “Additional Insured” on the contractor’s liability policy and, thus, potentially be provided with defense and indemnity should the HOA be named in a lawsuit; and (2) if there is a claim that is tendered to the association’s property or liability insurance coverage, the fact the contractor has liability coverage may provide a recovery opportunity (an option to subrogate against the contractor’s policy)  softening or eliminating the impact on the association’s own loss history.

Handymen typically do not maintain any workers’ compensation coverage.

There have been a number of cases in California where a person who claims to be an independent contractor gets injured, then turns around and claims to be an employee of the association in order to collect workers’ compensation benefits.

In some circumstances the erosion of the independent contractor relationship is codified in case law.   For example, if the association hires an individual to perform a task for which a license is required, that individual will immediately be deemed to be the employee of the association for workers’ compensation benefits (State Compensation Ins. Fund v. Workers’ Comp. Appeals Board (1985) 40 Cal.3d 5, 12-16 ).  This provision of the Labor Code makes an unlicensed contractor who is performing work for which a license is required an employee of the hirer, for the purpose of workers’ compensation.   How easily could such an issue arise?   In a former newsletter we discussed that the California Business and Professional Code requires a contractor’s license to trim a tree measuring 15 feet or more. (Bus. & Prof. Code, § 7026.1, subd (c)).    If your handyman is on a ladder trimming even the lowest branch on a fifteen-foot tree and is injured, he could be deemed the association’s employee and entitled to full workers’ compensation benefits.

California’s State Compensation Insurance Fund (State Fund) does offer an alternative for the sole proprietor:  the opportunity for the handyman to purchase their own coverage.   Unfortunately, few handymen avail themselves of this opportunity holding firm to the belief that because they have no employees, they are not required to maintain protection.  No one would judge them for trying to keep their expenses down, but failing to maintain their own coverage and their lack of a valid contractor’s license likely means that the exposure for any injury sustained by a handyman on the premises will commute to the association.

There are 43 different construction trade licenses recognized by the CSLB.   That is potentially 43 different ways your handyman, and by extension, your association could get in hot water. Risk transfer is a way to protect the association and the association’s claims history from the calamities caused by inexperienced and under qualified workers. The cost/benefit analysis for using a handyman may be favorable, but only in the short term…until there’s a claim.  Using licensed and insured contractors is an important first step for the board to properly manage risk.


Was It an Accident. by Mark E. Hancock

Accidents happen, and in every lawsuit insurance coverage is a critical issue. Coverage–or the lack of it–often determines whether the defendant receives a defense and whether the plaintiff recovers compensation.

Many accident cases, such as auto collisions, do not involve serious coverage disputes. But there are other situations that turn on the question of whether the defendant’s conduct was accidental (and covered by liability insurance) or intentional (and not covered). These disputes often involve California Insurance Code section 533, which precludes coverage for “willful acts.” This section is embedded in every insurance policy in the state (J.C. Penney Cas. Ins. Co. v. M.K., 52 Cal. 3d 1009, 1019 (1991)).

Legally, what determines whether an act is willful or intentional, as opposed to accidental? Is it the actor’s intent, or the consequences of the action?

It is not an easy question, for a willful act can result in unintended damage. For example, a person can intend to hit a softball with a bat, but not for the ball to smash though a neighbor’s window. In addition, people sometimes simply don’t fully analyze the potential ramifications of their conduct, or don’t care about the consequences. These circumstances are classic hallmarks of negligence and, in extreme cases, recklessness. Yet insurance policies usually cover them.

Defining Terms

In many cases, the term accident is not defined in the insurance policy at issue. However, courts have held that the unintended consequences of intentional actions can qualify for insurance coverage because they are “an unexpected, unforeseen or undesigned happening or consequence.” (Hogan v. Midland Nat’l Ins. Co., 3 Cal. 3d 553, 559 (1970); see also Geddes & Smith, Inc. v. St. Paul Mercury Ins. Co., 51 Cal. 2d 558, 563 – 564 (1959)). In one case, the court stated that if the consequential injury “is not intentional and is unexpected[,] it is accidental in character.” (Meyer v. Pacific Employers Ins. Co., 233 Cal. App. 2d 321, 327 (1965).)

The debate over what are “accidents” and what are “intentional acts” is an evolving judicial conversation. As one appellate panel observed, “[t]he meaning of the term ‘accident’ in insurance law is not settled.” (State Farm Fire and Cas. Co. v. Superior Court, 164 Cal. App. 4th 317, 325 (2008).) That, and more recent events as well, should be troubling to defendants who have caused injury while intentionally speeding or driving under the influence, or while engaging in mere horseplay–for these acts may wind up being excluded from coverage as intentional misconduct.

Elements of an Accident

Lively battles also are fought in cases where an insurance policy contains language requiring “bodily injury” or “property damage” arising from an “occurrence.” Such policies, in turn, usually define an occurrence as “an accident, including exposure to conditions, which results in … bodily injury.”

If the carrier contends that no accident occurred, the burden of proof rests with the insured, who must demonstrate that his or her claim falls within the policy’s basic coverage (Royal Globe Ins. Co. v. Whitaker, 181 Cal. App. 3d 532, 537 (1986)).

A helpful example is found in Merced Mut. Ins. Co. v. Mendez (213 Cal. App. 3d 41 (1989)). In that case, a coworker had alleged that Bobby Mendez (the insured) sexually assaulted her, while Mendez claimed the encounter was consensual. The court held that the sexual activity was intentional and no accident; hence, there was no duty for the carrier to defend or indemnify Mendez.

The court noted that Mendez admitted he intentionally engaged in sexual activity with the complaining co-worker and that all of the acts alleged occurred exactly as he intended. The court turned to out-of-state authority (see 213 Cal. App. 3d at 50, citing Unigard Mut. Ins. Co. v. Argonaut Ins. Co., 20 Wash. App. 261 (1978)) and concluded that for coverage to apply, both the means of harm as well as the result must be unforeseen, involuntary, unexpected, and unusual. An accident, said the court, is never present when the insured performs a deliberate act unless the damage is produced by some additional, unanticipated happening.

In other words, if the insured intended all of the acts that resulted in the victim’s injury, an assertion by the insured that he did not intend to cause injury does not, for coverage purposes, by itself transform the case into an accident. Conversely, the court stated, an accident exists “when any aspect in the causal series of events … was unintended by the insured and a matter of fortuity.” (213 Cal. App. 3d at 50.)

Intentional Conduct

In addition to the statutory exclusion cited above, insurance policies typically contain an independent provision that bars coverage for injuries caused by intentional conduct. The statutory and policy exclusions can be treated as one, for there is authority that an intentional acts exclusion can be treated the same as Insurance Code section 533. (See Allstate Ins. Co. v. Overton, 160 Cal. App. 3d 843, 849 (1984).)

California’s Supreme Court has held that reckless conduct amounting to a conscious disregard for the safety of others is not willful within the meaning of section 533 (Peterson v. Superior Court, 31 Cal. 3d 147, 158 (1982)). State courts have also noted that a willful act “means ‘something more than the mere intentional doing of an act constituting … negligence,’ and appears to be something more than intentional violation of a statute.” (B&E Convalescent Ctr. v. State Comp. Ins. Fund, 8 Cal. App. 4th 78, 94 (1992).) Thus, insurance may cover nonpunitive damages in cases of drunken driving and the reckless operation of a motor vehicle.

The legal test for determining excluded willful misconduct requires two things. First, there must be an intent to do the act. And second, there must be an intent or motive to cause the resulting harm (Allstate Ins. Co., 160 Cal. App. 3d at 848 – 849). This latter requirement has been referred to as a “preconceived design to inflict injury.” (Clemmer v. Hartford Ins. Co., 22 Cal. 3d 865, 887 (1978).)

The inquiry can be somewhat subjective. The insured may deny that he intended to cause the harm, which might create the potential for coverage and thereby trigger the duty to defend. (See Gray v. Zurich Ins. Co., 65 Cal. 2d 263 (1966).) Further, in certain cases, such as those involving “all risk” policies, the insurance carrier has the burden of proving exclusions–and therefore must shoulder the responsibility of disproving the subjective testimony of the insured. (See Garvey v. State Farm Fire & Cas. Co., 48 Cal. 3d 395 (1989).)

Courts have, however, injected some objectivity into the inquiry. In cases of inherently wrongful conduct (such as child molestation), judges will reject the argument that the perpetrator did not intend the harm. In those situations, the act itself is so heinous that the intent to cause harm is inferred as a matter of law. (J.C. Penney, 52 Cal. 3d 1009 (1991) (child molestation); United States Fid. & Guar. Co. v. Am. Employer’s Ins. Co., 159 Cal. App. 3d 277 (1984) (arson); Fire Ins. Exch. v. Altieri, 235 Cal. App. 3d 1352 (1991) (unprovoked assault and battery).)

Part of the rationale for this rule is that Insurance Code section 533 must be construed to effect its purpose, which is to discourage willful torts (B&E Convalescent Ctr., 8 Cal. App. 4th at 93). In the area of inherently wrongful conduct, courts have ruled that the insured can’t claim coverage based merely on unintended consequences.

Recent Trends

Three years ago, an insurer denied coverage for a defendant who attempted to throw a person into a swimming pool and missed. The court reasoned that the act of throwing the person was intentional, but that coming up short was not–it was the intervening event that made the incident an accident under the applicable insurance policy (State Farm, 164 Cal. App. 4th 317).

Defense commentators took issue with that conclusion, arguing that since the last act (throwing the person into the pool) was intentional, there was no accident and therefore no coverage. However, the State Farm court provided a ready response in its opinion: the example of the batter who intentionally swats a baseball without intending to break a neighbor’s window. (See 164 Cal. App. 4th at 328 – 329.)

The state Supreme Court returned to the fray in an assault and battery case. The insured defendant claimed that he acted in self-defense. When the carrier refused to defend, the insured settled and assigned his insurance claims to the injured plaintiff, Jonathan Delgado, who brought suit against the carrier (Delgado v. Interins. Exch. of the Auto. Club of S. Calif., 47 Cal. 4th 302 (2009)).

The state Supreme Court ruled that a person’s unreasonable, subjective belief in the need for self-defense could not transform purposeful acts–admittedly intended to inflict injury–into accidental ones. This result was not surprising, given that appellate courts had already rejected such an argument in cases where the assault and battery were unprovoked. (See Altieri, 235 Cal. App. 3d 1352.)

It should be noted that the trial court in Delgado had asked the injured plaintiff–who was standing in the shoes of the insured seeking coverage–to plead facts supporting justifiable self-defense. Delgado admitted that he could not do so, and because there was no evidence justifying the attack, the trial court found the contention regarding self-defense to be disingenuous at best.

The state Supreme Court cited the Geddes and Hogan cases for the proposition that in the context of liability insurance, an accident is “an unexpected, unforeseen, or undersigned happening or consequence from either a known or an unknown cause.” The court further stated that “[t]his common law construction of the term ‘accident’ becomes part of the policy. …” (Delgado, 47 Cal. 4th at 308.)

While stating that an unexpected consequence can be an accident, the opinion noted that “an injury-producing event is not an ‘accident’… when all of the acts, the manner in which they were done and the objective accomplished occurred as intended by the actor.” (Delgado, 47 Cal. 4th 302, at 311312.) In holding that there was no insurance coverage, the court noted the absence of any evidence that the insured’s acts were “merely shielding” or reflexive, stating that the insured committed assault and battery with the intent to cause injury.

The court rejected Delgado’s claim that accidents should be determined from the standpoint of the insured party, observing that such a holding could make even molestation accidental. It also held that an insured’s mistake of fact or law does not transform purposefully inflicted harm into accidental injury: Only unintended, accidental, fortuitous events or happenings occurring after the insured’s intentional actions can make an injury accidental. Provocation, said the court, does not count.

The trend, then, is toward more objectivity. However, it is dangerous to focus on the insured’s conduct in isolation and to forget that deliberate actions can have unintended consequences. Indeed, even the Delgado court recognized that when certain consequences are unintended, an accident may well have occurred. It specifically noted that when a driver intentionally speeds and as a result negligently hits another car, if the driver did not intend to hit anything, the collision would be fortuitous. “Accordingly,” said the court, “the occurrence resulting in injury would be deemed an accident.” (47 Cal. 4th at 316 (citing the Mendez decision).)

Clearly, coverage does not vanish merely because the insured acted intentionally and the victim was injured. However, as the Mendez court ruled, an accident “is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.” (Mendez, 213 Cal. App. 3d at 50.)

Given this rule, a look back at the assault and battery circumstances of the Delgado case is instructive. Had the insured’s maneuvers been defensive in nature–designed to shield himself as opposed to inflicting injury on the other person–coverage may well have applied. Indeed, the justices specifically noted that this type of allegation was not before the court. Presumably, had the insured acted defensively instead of offensively, the injuries might well have been deemed accidental, at least for coverage purposes.

Taken together, these cases make a simple point: In order to claim coverage for an accident, an insured party needs to demonstrate on an objective scale that the injuries in question were neither expected nor intended.

Provocation May Still Matter

It is one thing to objectify the inquiry into whether an event is accidental, but quite another to bar consideration of the individual, subjective factors that motivated the insured party to act. There was no evidence of provocation in Delgado, yet the court provided an extended discussion on the point that provocation is irrelevant to the analysis of whether conduct is an accident. (See 47 Cal. 4th at 314 – 316.)

In many instances, however, provocation can, like alcohol, make people act recklessly, without thinking, and without intending or considering the consequences. Should policyholders be entitled to insurance coverage if they took action not with an improper motive or the intent to cause injury, but instead due to an impulse they could not control? Future cases may well center on this very point.

Know Your Burden

When an insurance carrier denies coverage based on an exclusion contained in the policy (such as in the Gray case, 65 Cal. 2d at 266), the insurer carries the burden of proof.

However, if the issue is not an exclusion, but rather whether coverage exists in the first place (see Delgado, 47 Cal. 4th at 308), the onus is on the policyholder to make the case. (See Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 16 (1995).)

The cases discussed above serve as a reminder that injured parties, as well as the insured, should consult with experienced counsel before statements are taken and pleadings prepared.



Tree Law by Barri Kaplan Bonapart

It is a familiar story. A client comes into a lawyer’s office, complaining that his neighbor has just hacked his trees without his permission, and he wants legal representation. Although the lawyer has never handled a “tree case,” she has practiced civil litigation for years, maybe even real estate litigation, and feels confident in her abilities to fight the good fight. She says to herself, “How hard could this be?” But after one year, tens of thousands of dollars in legal fees, and a very disappointed client, the lawyer tells herself that she won’t ever handle another tree case.

What went wrong? Why are tree cases so thorny? What can lawyers do to help their clients obtain quicker, more cost-effective results? In California, where trees are plentiful, homes are close to each other, and homeowners often have a disproportionate sense of entitlement, the number and variety of tree disputes are enormous. Whether the issue is one of trees blocking views, roots lifting driveways, trees causing property damage or personal injury, trees dropping debris, or acts of vandalism against trees, it is important not to underestimate the complexities of the dispute when initially deciding whether to take the case and how to get the best result.

        1. Get to the root of the problem. Tree problems usually fall under the heading of neighbor disputes, which tend to be rancorous and even downright nasty. It is not unusual, therefore, for the client walking through your door to be angry and distraught. For many anxious clients, this will be their first foray into the legal world.

After listening to the client’s story, it may be tempting to launch into giving advice and concocting solutions to the “problem.” After all, that is what lawyers do best. Slow down and beware. It is important first to find out what the client wants to achieve. This may be the first time he or she actually stops to think about it. Because our judicial system is limited in the kind of remedies it can provide, it is important to know whether the client’s objectives are reasonable. Beware of clients who say they want retribution, retaliation, or even respect. If, after exploration, the client’s expectations do not match your repertoire of remedies, declining representation will be the best thing for both of you.

        2. Consult an expert on damages and liability. Ordinarily, in civil cases, we do not think of retaining expert witnesses until well into the case. With certain types of tree cases, however, it may be appropriate to retain a qualified consulting arborist before even deciding whether to take the case. For example, in the case of a neighbor who cut your client’s trees without permission, liability may be clear-but what are the damages? You may think the trees do not have much value, but it turns out that more than $50,000 worth of damage was done. Conversely, you may assume that a particular tree has great value, but it turns out that, because of its species, condition, or location, it barely qualifies for small claims court. Whatever the tree’s value, keep in mind that “[c]ourts have stressed that only reasonable costs of replacing destroyed trees with identical or substantially similar trees may be recovered.” Hassoldt v Patrick Media Group, Inc. (2000) 84 CA4th 153, 168, citing Heninger v Dunn (1980) 101 CA3d 858, 865.

In other types of tree disputes, the damages may be clear, but liability may be a question. For example, in a case concerning a hazardous tree smashing a house or car, did the tree fall because of something the tree owner knew or should have known about the tree? Knowing the answers to such questions in advance will help you decide whether to take the case and how best to proceed.

Do not confuse a certified arborist with a consulting arborist. Anyone who passes the test administered by the International Society of Arboriculture, the trade organization for the arboricultural industry, may become a certified arborist. While there are many certified arborists who may be qualified to serve as consultants, there are many more whose only qualification is that they have a pickup truck and a chainsaw. A consulting arborist with forensic training, regardless of “certification,” is the appropriate expert to look at questions of causation and valuation. To find a qualified consulting arborist in your area, contact the American Society of Consulting Arborists in Rockville, Maryland, at 301/947-0483 ( or check their online referral database at You could also consult a local attorney specializing in tree disputes for recommendations.

        3. Know your statutes and ordinances. State statutes regarding trees span six codes. Here are just a few examples: Civil Code section 3346 and Code of Civil Procedure section 733 provide mandatory doubling (with certain exceptions) and discretionary trebling of damages for wrongful injury to trees and vegetation. They also provide a five-year statute of limitations. Penal Code sections 384a and 622 make it a crime to harm or remove trees or plants on land, not your own, which is punishable by a fine of up to $1,000 and imprisonment in jail up to six months.

In addition, most municipalities have tree ordinances. Many communities have “heritage tree” ordinances that govern the type of trees that can be cut or removed, even by the property owner. Protected trees are often defined by size, age, or species. There is little uniformity in these ordinances, and one community’s heritage tree can be another community’s undesirable species. For example, the city of Mill Valley, known for its majestic redwoods, protects redwood trees of a certain size, while the city of Sausalito, known for its majestic views, lists redwoods as an undesirable tree because it is a fast- and tall-growing species. The city of Novato defines a heritage tree as anything larger than 24 inches in diameter (75 inches in circumference) regardless of species.

Although there is no common law right to a view in California (see Wolford v Thomas (1987) 190 CA3d 347, 358-359), some properties are subject to a view easement. Many towns have adopted view ordinances, and courts have agreed that advancing aesthetic values is a legitimate exercise of police powers. But do not look for uniformity in these ordinances either. Each one has its own requirements regarding how the ordinance is applied, what views are protected, the factors to be balanced, and the alternative dispute resolution requirements, if any, to be pursued. If drafted correctly, such ordinances pass constitutional muster. See, for example, Kucera v Lizza (1997) 59 CA4th 1141 (Tiburon view ordinance supports valid police power goal of preserving views and sunlight); Echevarrieta v City of Rancho Palos Verdes (2001) 86 CA4th 472 (ordering appellant to trim trees for neighbor’s view did not violate takings clause).

Remember to ask whether the property in question is located in a planned development or governed by a homeowners’ association. There may be contractual covenants, conditions, and restrictions (CC&Rs) regarding trees and views that apply. Another complication can arise if solar panels are being blocked if that is contrary to ordinance or agreement.

        4. Who owns the trees? This seems like an obvious question. And it is certainly a critical piece of information. However, asking your client this question is just the beginning of the inquiry. Often the client’s answer will be based either on an incorrect understanding of the legalities of ownership or an incorrect understanding of the property lines. Civil Code section 833 provides that a tree whose trunk stands wholly on the land owned belongs exclusively to that owner. So you must determine where in relation to the property line the trunk meets the ground, regardless of where the roots or branches grow. Civil Code section 834 provides that trees whose trunks stand partly on the land of two or more coterminous owners belong to them in common. This gives rise to joint rights and responsibilities.

People often assume that the property line is the fence line. While this assumption may be correct, if there is any doubt about ownership, a line survey should be ordered at the beginning of your representation.

        5. Don’t shoot first and ask questions later. One of the first questions I ask my clients is whether they have spoken to the other side about their concerns. I am always surprised by the number of times the answer is no. Because your client will continue to live next door to these neighbors for some period of time (maybe even the rest of their lives), it is important to find ways of preserving that relationship. Although sending the “lawyer letter” may make the client feel good in the short term, it can do irreparable damage. Encourage the client to personally contact the neighbor to talk about the problem. It may turn out that the neighbor was unaware of the problem and may be quite willing to accommodate your client in some way that is satisfactory to both sides. You can help set up the client for success by role-playing this conversation with your client.

        6. It is not about the trees. Very often disputes about trees have their genesis in something completely different. Perhaps your clients did not invite the neighbor to their daughter’s wedding; or the neighbor, an older person who has lived there for 40 years, does not like being told what to do by your twenty-something clients who moved in six months ago; or perhaps your clients angered the neighbor by challenging a remodeling or construction project five years earlier. Getting beneath the parties’ positions to their needs will often reveal the keys to a mutually agreeable solution.

        7. Insurance considerations. Insurance may play a role in resolving tree disputes. If your client’s property is damaged by a neighbor’s tree, the client’s homeowner’s policy should cover the damage to the house, other structures, vehicles, trees, plants, pavement, walkways, drives, furniture, and personal belongings. The tree owner’s policy may also provide coverage under the liability portion of the policy. Carriers will try to avoid damage claims caused by falling trees by claiming they do not cover “acts of God.” How ever, this defense is extremely difficult to establish. It requires an event so unusual in its proportions that it could not be anticipated. See Mattos v Mattos (1958) 162 CA2d 41 (windstorm was not of sufficient intensity to be “act of God”). And even in such an event, the defendant will not be relieved of liability if his or her own negligence contributed to the damage.

When trees have been cut or vandalized, a tree owner’s insurance usually covers damage to the trees up to a certain dollar amount. Many policies pay up to $500 a tree or 5 percent of the total property value. The tree cutter’s insurance may also provide coverage unless the carrier determines that the cutter acted “intentionally.”

        8. Discourage self-help. A common assumption is that people have an absolute right to cut offending branches or roots that encroach on their property. This assumption should have been dispelled in 1994 when an appellate court held that there is no absolute right to sever encroaching roots; rather, the test is one of reasonableness. Booska v Patel, 24 CA4th 1786. Thus a landowner’s right to remove the portions of a tree that encroach on his or her land must be balanced against the obligations to act reasonably toward adjoining landowners and to refrain from causing foreseeable injury to neighboring property. California Civil Practice, Real Property Litigation §11:42 (West, 2001). A landowner is responsible “for an injury occasioned to another by his want of ordinary care or skill in the management of his property or person, except so far as the latter has, willfully or by want of ordinary care, brought the injury on himself.” CC §1714. See also CC §3514 (general obligations to others).

        9. The expanding duty of care. When establishing liability for damage caused by trees, ownership is a starting point but not the end of the inquiry. Other potentially responsible parties include those who possess the land on which the trees grow or exercise control over the trees. For example, maintaining trees, even if they are not yours, may be sufficient to give rise to a duty of care to others.

The landmark case of Husovsky v U.S. (DDC 1978) 590 F2d 944 involved a motorist who was badly hurt when a tree limb, weighing nearly ten tons, fell onto his car. The tree was located on embassy land in Washington, D.C., owned by the government of India, and subject to an agreement that amounted to an easement for the benefit of the United States. The land was controlled and maintained by the federal government and was indistinguishable from the contiguous national park. The road through the park was jointly maintained by the District of Columbia and the National Park Service. The court found that the United States, whose duty it was to maintain and service the park, owed a duty of reasonable care to avert hazards that could be dangerous to passing motorists.

California has been making its own forays into this expansion. In 1997 the state Supreme Court affirmed the possibility of a duty owed by a landlord to a tenant who was injured on land not owned by the landlord by stepping in a broken or uncovered utility meter box that was located in a narrow strip of city-owned lawn in front of the landlord’s property. The landlord had sometimes mown the lawn prior to the incident, and he had built a fence around the entire lawn, including the city-owned portion, after the incident. The landlord argued that no duty was owed since he did not own the strip of land, nor did he exercise any control over the meter box. Although the trial court agreed, the Supreme Court found in a 4-to-3 decision that the evidence of mowing and fence-building presented a triable issue of fact regarding whether this type of maintenance could constitute sufficient control to give rise to a duty. Alcaraz v Vece, 14 C4th 1149. The court noted, “[t]he proper test to be applied to the liability of the possessor of land … is whether in the management of his property he has acted as a reasonable man in view of the probability of injury to others. This duty to maintain land in one’s possession in a reasonably safe condition exists even where the dangerous condition on the land is caused by an instrumentality that the landowner does not own or control.” 14 C4th at 1156.

Although evidence of maintenance of adjacent property is relevant to the issue of control, mere “neighborly maintenance” of a sidewalk planting strip-even tree trimming and gardening-in front of a residence does not create a duty to a pedestrian who trips and falls there. Contreras v Anderson (1997) 59 CA4th 188. The critical question is whether the adjoining landowner took action to preclude or limit the actual owner’s control of its own property. A landowner who has control over the cause and repair of a defect in a sidewalk does have a duty to warn pedestrians or repair the defect. Alpert v Villa Romano Homeowners Ass’n (2000) 81 CA4th 1320.

        10. Promote the Golden Rule. Clients sometimes need to be reminded to treat their neighbor as they would like to be treated. While there are cases that will find resolution only before a judge or jury, in general it is in your client’s best interest to avoid escalating neighbor disputes into litigation. Explain to your clients that court victories can be largely Pyrrhic, won at excessive monetary, emotional, and social cost. The lawyer who can solve problems through creative alternatives to litigation performs a service not only for the client but for the community at large.

Attorney-Client Privilege

No matter where your community is located, how big your community is, or what type of community you live in (condominium, townhome, single family, etc.), legal issues, and the need for legal advice, arise.  Consequently, the board of directors should be aware of the attorney-client privilege and the protection it provides to associations regarding nondisclosure of certain communications.  However, like with most things in life, there are certain exceptions to the attorney-client privilege rule.  This article will explain the basis of the attorney-client privilege, which communications are covered under the privilege, who is covered under the privilege, and how the privilege is waived.

What is the attorney-client privilege?

The attorney-client privilege is an important part of an attorney-client relationship and encourages full and frank communications between an attorney and his or her clients.  The attorney-client privilege covers communication (oral or written) between privileged persons (an attorney and his or her client) made in confidence (the communicating person reasonably believes that the communication will not be shared with nonprivileged persons) for the purpose of obtaining or providing legal advice or assistance regarding the client’s rights and obligations.

In the context of associations, an attorney-client communication is a confidential communication between the association’s legal counsel and the board or, sometimes, the board’s representatives.  It should be noted that an association’s attorney represents only the corporate entity—not the individual board members, not the board as a whole, not the community manager, not the association’s management company, and not the individual homeowners.  Thus, communications between an association’s attorney and an owner who is not also a board member would not constitute attorney-client privileged communication.

What communications are covered under the attorney-client privilege?

Not all communications are covered by the attorney-client privilege.  Communications with an attorney involving general business advice or utilizing the attorney’s services in any nonlegal role generally do not qualify as attorney-client communications.  The attorney-client privilege extends only to confidential communications between the client and attorney in the course of gaining counsel, advice, or direction concerning the client’s rights or obligations.  Essentially, the client must be seeking advice on a specific issue in the community or general legal advice concerning the community.

Who is covered by the attorney-client privilege?

As stated above, the corporate entity (the Association) is the entity that establishes the attorney-client relationship.  Because the corporate entity is not a living, breathing human, it cannot individually communicate with an attorney.  Thus, under Colorado law, the corporate entity communicates through its board of directors.  Any communication between an attorney and a member of a board of directors—assuming it is for the purpose of gaining counsel, advice, or direction concerning the association’s rights or obligations—may be considered a privileged attorney-client communication.

However, most associations govern with the assistance of community managers.  While it is clear that direct communications between the board of directors and the association’s counsel are privileged communications, the law is not entirely clear on where communications with community managers fall.

Based on the above, it is good practice to adopt an attorney-liaison policy that clarifies the association’s position that the manager and management company are acting on behalf of the association and the same privilege of confidentiality applies to communications between the association’s attorney and the association’s manager and management company.

How is the attorney-client privilege waived?

While the attorney- client privilege is beneficial to an attorney-client relationship in that it allows for open and frank discussion, it is not iron-clad and may be waived.  A waiver of the attorney-client privilege occurs when (1) a third party (such as a homeowner who is not a board member) is present during discussion or copied on an email; (2) the association voluntarily abandons the privilege by disclosing attorney-client information to a third party; or (3) the association impliedly abandons the privilege through its actions.

Finally, the attorney-client privilege belongs to the association and may only be waived by the board.  An association’s attorney may not waive the attorney-client privilege, barring a few specific circumstances.

Overall, the attorney-client privilege is a valuable tool that facilitates candid discussions between attorneys and their clients and encourages the free flow of advice.  However, the attorney-client privilege analysis is a difficult and complicated one, and the board should consult with the associations’ legal counsels prior to taking any action that could waive the privilege.




Understanding Negligence

What is negligence?

In simplest terms, to be negligent is to act in some careless way that causes harm to another.  For example, someone is not paying attention while backing out of his driveway and ends up hitting his neighbor’s mailbox.  The driver’s negligence (i.e., careless driving) caused damage to the neighbor’s mailbox, resulting in the neighbor having to replace the mailbox.

How does negligence play into the setting of a community association?  Most often, it comes up when the Board of Directors is trying to determine who is responsible for paying for repairs.  Negligence, if found, could shift the liability for costs of repair to the negligent party.

How do you determine whether someone was negligent?

If the Board is trying to determine whether someone was negligent, it needs to ask the following four questions:

1. Duty—Did the person owe a legal duty to the association?
2Breach—Did that person breach his or her legal duty by acting or failing to act in a certain way?
3. Cause—Was it that person’s action or inaction that actually caused the association injury?
4. Damages—Did the association suffer damages as a result of the person’s action or inaction?

Let’s look at each one separately.

  1. Duty: Did the person owe a legal duty to the association?

In the context of community associations, when asking whether someone owes a legal duty, the first place to look is to the Declaration (also known as CC&Rs or Covenants).  This document establishes both the rights and obligations of the association and the owners.  If you buy property that is part of a common-interest community, then you buy that property subject to the Declaration and other governing documents of the community.  So, nine times out of 10, the Declaration creates a legal duty.  For example, the Declaration often states that an owner owes the association a duty to properly and adequately maintain his or her property.

  1. Breach: Did that person breach his or her duty?

A negligent person violates a duty owed to the association.  However, what exactly is a violation of that duty?  If the Declaration states that an owner must maintain his or her Unit, what is considered proper maintenance?  Sometimes, the appropriate standard of care is expressly stated in the governing documents.  However, if it is not, then that standard is “What would a reasonably prudent person do under the same or similar circumstances?”  If that person failed to act according to that standard, then that person likely breached his or her duty.
For example, if a condominium Declaration requires an owner to that keep the heat on at a specific temperature during freezing weather, and the owner turns off the heat in the winter before leaving for two months’ vacation during the coldest part of the year, then the owner has breached his or her duty by failing to keep the heat on.  If this failure then actually causes damage, as discussed in the next section, then you are three-fourths of the way to establishing negligence.

  1. Cause:Was it the person’s action (or inaction) that caused the injury?

While someone might have breached his or her duty, the key question now is whether that breach actually caused the injury suffered by the association.  For example, an owner may have breached his duty by driving across the common area once, but it was clearly posted in the rules and Declaration that vehicles are not permitted on the common area.  However, what if, for several days before the owner drove on the common area, association construction vehicles had also been driving over the common area in the same area while performing work for the association?  Moreover, what if the tracks on the common area looked to be created by the construction vehicle tires?  Did the owner’s breach cause the damage to the common area?

  1. Damages: Did the association suffer damages due to the person’s action or inaction?

Finally, the association must have suffered some form of compensable damage due to the person’s action or inaction.  Usually, the damage suffered is the cost of repair, or whatever costs the association incurs, resulting from the person’ negligence.

Tying it All Together

One of the most common reasons for determining whether an owner or the association was negligent is when there has been a water leak.  Let’s say a pipe burst on an upper level, causing water damage to the unit below.  Who is responsible for the water damage to the lower unit?

  1. Is there a duty?
  • Who, under the governing documents, has a duty to maintain and repair the pipe that broke?  The owner?  The association?
  • Often, but not always, the Declaration requires the owner to maintain his or her unit and the association to maintain the common elements.  So, if the pipe is part of the unit, then the owner is the responsible party.  If the pipe is part of the common elements, then the association is the responsible party.  However, each Declaration is different.  The answer is document specific, so consult your attorney if you are unsure.
  1. Did the responsible party breach his or her duty by failing to properly maintain or repair the pipe?
  • Did the responsible party know (or should that party have known) that the pipe needed repairing?  If a pipe is within the walls of a unit, then more than likely, neither the owner nor the association would have reason to know that the pipe needed repairing.
  • Once the responsible party found out that the pipe needed repairing, did that party take reasonable action?  A breach occurs if the party fails to take action that a reasonably prudent person would have taken under the circumstances.

For example, if the association was the responsible party and it was addressing a flood situation, the reasonably prudent action would be for the association to arrange for contractors to immediately stop the water flow and to remove the water.  This type of action, however, is not necessary to prevent potential water damage from a hole in the roof.  If the association just found out about a hole in a roof in the middle of summer, with not a rain cloud in sight, it certainly would not be unreasonable to schedule a contractor to come out the following week to inspect and repair.  If, however, they find out during a flood, taking immediate action would be reasonably prudent.  Timeliness of repair is often a key factor in finding negligence.

  1. Did the party’s breach cause the damage?
  • Did the responsible party’s failure to repair the pipe in a timely fashion cause the water damage?  What if the lower unit owner’s dishwasher broke at the same time as the pipe overhead burst and the dishwasher water seeped all over the hardwood floor?  In that case, the water from the dishwasher caused the damage to the hardwood floor, not the upstairs unit’s pipe.  Therefore, the upstairs-unit owner’s negligence could not have caused the water damage.
  1. Did the injured party suffer damages?
  • If there are no actual damages caused by the responsible party’s breach, then no liability occurs.  The actual damages suffered by the lower unit would be the cost to repair whatever was damaged by the water from above.

In sum, to be negligent, an owner or the association must have a duty, the owner or association must breach that duty, the breach must have caused the injury, and the injured party must have suffered damages.  Determining negligence requires applying these factors to the specific facts and circumstances at hand.