Andreea Custurea and Thomas Fama | Wood Smith henning & Berman
In the case of River’s Side at Washington Sq. Homeowners Assn. v. Superior Court, 3d. Cir. No.C095860 (2023), a homeowners association successfully argued that it had standing to sue for construction defects on behalf of individual unit owners. Under the Right to Repair Act, homeowner associations do not have standing to sue on behalf of members for construction defects within individual units, but may sue for defects in the common areas. In this case the court distinguished between claims brought under the Right to Repair Act and claims for breach of contract or fraud. If those claims qualify as representative actions, then the association may have standing to sue for issues in the common areas as well as the individual units pursuant to section 382 of the California Civil Code.
Background Facts
River’s Side at Washington Square Homeowners Association (HOA) is a homeowners association tasked with managing a development that contains twenty-five residential units and one commercial unit as well as several common areas. All of the individual units-both residential and commercial- were owned individually by the HOA’s members. The common areas of the development were owned by the HOA. The development was originally financed and built by a group of both entities and individuals referred to in this case collectively as the developers. At the time the units were ready to sell, the economic conditions were not ideal and the developers were only able to sell three of the twenty-five residential units. The remaining twenty-two were sold in a bulk sale to the defendants, River’s Side LLC.
This case arose out of alleged construction defects in the “structure, components and common areas” of the development. Some of the examples of defects included water intrusion and cracked stucco among others. In all, the HOA asserted seven causes of action against the defendants:
- Violations of statutory standards for residential construction contained in the Right to Repair Act
- Breach of implied warranty
- Assigned rights
- Breach of contract
- Intentional or negligent nondisclosure
- Intentional or negligent misrepresentation, and
- Breach of fiduciary duty
The defendants argued that the HOA lacked standing to sue on behalf of the members and the trial court agreed. On appeal, the court found that the HOA did in fact have standing as to the common areas and may have standing as to the residential units if it can meet the requirements to bring a representative action according to Civil Code section 382.
Did the HOA Have Standing to Sue on Behalf of its Members in This Case?
The HOA challenges the trial court’s ruling that it did not have standing to pursue a claim on behalf of its members. The defendants relied on Civil Code section 367 to support their contention that the HOA lacked standing. That section states, “Every action must be prosecuted in the name if the real party in interest, except as otherwise provided by the statute.” Generally, a real party in interest is the person or entity that has the right to sue under the substantive law. “A party who is not the real party in interest lacks standing to sue because the claim belongs to someone else.” Estate of Bowles, 169 Cal. App.4th at 690. The HOA argues that their basis for standing is found in three sections of the civil code and the court discussed each in detail. Civil Code Section 5980
This code section states in applicable part, “An association has standing to institute.litigation. in its own name as the real party in interest and without joining it with the members, in matters pertaining to the following:
- Enforcement of the governing documents;
- Damage to the common area;
- Damage to a separate interest that the association is obligated to maintain or repair; or
- Damage to a separate interest that arises out of, or is integrally related to, damage to the common area or a separate interest that the association is obligated to maintain or repair.”
The trial court did not find the provisions of section 5980 persuasive in considering the HOA’s standing because the defects it identified did not concern the common area or any other areas that the HOA was obligated to maintain or repair. Even though the HOA agrees that this section does not give it standing to sue for defects present in members’ residential units, it reminds the court that it is also bringing suit for defects present in the common areas of the development.
On appeal, the court acknowledged that the HOA did file a claim for defects present in the common areas as well as the individual units. “The sole issue raised by a general demurrer is whether the facts pleaded state a valid cause if action, not whether they are true. No matter how unlikely or improbable, plaintiff’s allegations must be accepted as true for the purpose of ruling on the demurrer.” Kerivan v. Title Ins. & Trust Co. (1983) 147 Cal. App.3d 225, 29. Due to the fact that the HOA alleges at least some defects in the common areas, the court must accept this allegation as true and this in effect established Plaintiff’s standing under section 5980 and allows it to bring a claim for those defects. This decision of the trial court reversed on this point and the HOA does retain standing pursuant to this code section for the common areas of the development.
Civil Code section 945
This section of the Civil Code is a portion of the Right to Repair Act. The Right to Repair Act “comprehensively revised the law applicable to construction defect litigation for individual residential units.. It sets forth detailed statewide standards that the components of a dwelling must satisfy. It also establishes a pre-litigation dispute resolution process that affords builders notice of alleged construction defects and the opportunity to cure such defects, while granting homeowners the right to sue for deficiencies even in the absence of property damage or personal injury.” McMillan Albany LLC v. Superior Court (2018) 4 Cal.5th 241, 246-247.
Section 945 specifically provides, “The provisions, standards, rights and obligations set forth in this title are binding upon all original purchasers and their successors-in-interest/ For purposes of this title, associations and others having the rights set forth in Sections 5980 and 5985(9) shall be considered to be original purchasers and shall have standing to enforce the provisions, standards, rights, and obligations set forth in this title.”
The trial court reasoned that because it references section 5980, section 945 must also incorporate section 5980’s standing requirements. The plaintiff disagrees with this interpretation and asserts that section 945 grants the same status to original homeowners as associations for the purposes of determining standing and therefore the association has standing to the extent that original homeowner would have standing already said. The court disagrees with this argument.
The court looked to the case of B.B. v. County of Los Angeles (2020) 10 Cal.5th 1, 13, which found “the courts should if possible, give meaning to every word of a statute and avoid constructions that make any word surplusage.” Through his lens, the legislature must have had a purpose in referring to section 5980 in section 945. The HOA argues that the purpose was to provide a definition of what types of associations had standing to assert rights on behalf of their members according to the Right to Repair Act and not to define what types of claims the associations had standing to bring.
The court did not find merit in this assertion, but instead found guidance in the Davis-Stirling Interest Development Act, which is codified in sections 4000-6150 of the Civil Code. In section 5980, the code lays out four types of claims that may be brought, but does not define the meaning of association. It is defined, however, in Civ. Code section 4080 as, “a nonprofit corporation or unincorporated association created for the purpose of managing a common interest development.” Given this definition, the court here found that the HOA qualifies as an association under the statute as it manages a common interest development. Thus, section 5980 also applies to the HOA here.
The court then re-examines section 945 which states that, “associations having the rights set forth in section 5980 shall be considered to be original purchasers and shall have standing to enforce the Right to Repair Act.”
The court found it noteworthy that the Legislature did not use that phrase in section 945. Instead, it provides that “associations . . . having the rights set forth in Section 5980 . . . shall have standing to enforce” the Right to Repair Act.” Since the Legislature uses different phrases in different parts of the same statutory scheme, the court determined that those phrases have different meanings. Regents of University of California v. Superior Court (2013) 220 Cal.App.4th 549, 565. Section 5980 specifies what claims an HOA has standing to assert. Thus, the most reasonable interpretation of section 945 is that, by referencing section 5980, the Legislature intended to specify what claims an HOA has standing to assert under the Right to Repair Act. Given this, the court found that section 945 limits an HOA’s standing to enforce the Right to Repair Act to claims it has standing to bring pursuant to section 5980.
Civil Code Section 382
Section 382 is a general statute not directed specifically at HOAs. It states, “When the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.” This section is often referred to as California’s class action statute, even though those specific words are not used. Green v. Obledo (1981) 29 Cal.3d 126, 146. Significant precedent regarding section 382 authorizes representative actions, which are not class actions. The court here characterized it as, “An action in which an association may be allowed to sue in a representative capacity on behalf of its members if certain requirements are met, even if the association itself suffered no damage and would otherwise lack standing to sue.”
The HOA asserts that this is attempting to bring a representative action. It relies on the case of Raven’s Cove Townhomes, Inc. v. Knuppe Development (1981) 114 Cal.App.3d 783, in which the court held that an HOA who owned the common areas, but not the individual units had standing to sue the developer for defects in the individual units. It reached this conclusion based on the HOA’s ability to sue in a representative capacity by way of section 382. The court stated, “The justification for the procedural device whereby one may sue for the benefit of many rests on considerations of necessity, convenience and justice.” Id. It also outlined two requirements that are necessary to bring a representative action:
- “Ascertainable class, and
- well-defined community of interest in the questions of law and fact involved affecting the parties to be represented.” Id.
Raven’s Cove found that “there was an ascertainable class (I.e. the HOA’s members) and a well-defined community of interest, and that considerations of necessity, convenience and justice under the circumstances provide ample justification for the use of the representative procedural device. This case is important because it set a precedent that if the requirements for a representative action are met, an HOA can sue in a representative capacity on behalf of it member for construction defects present in the individual units as well as the common areas.
Here the HOA contends that all of the requirements were met and yet the trial court did not rule in its favor. The truth is that the trial court never reached this issue in its entirety because it reasoned that Raven’s Cove was inapplicable due to the fact that it was decided prior to the enactment of the Davis-Stirling Common Interest Development Act in 1985 and the Right to Repair Act in 2002 and both of these statutes include specific standing requirements for HOAs. Based on this reasoning, the trial court found that section 5980’s grant of standing to HOAs made the standing provided in 382 irrelevant.
Recent case law debunks the trial court’s conclusion on this point. In Market Lofts Community Assn. v. 9th Street Market Lofts, LLC (2014) 222 Cal.App.4th 924, the court found that the HOA had standing both in its own right and on behalf of the homeowners who were impacted by parking fees in the development. In effect this case stands for the proposition that an HOA can establish standing by way of section 5980 or section 382, and that even if an HOA doesn’t have standing pursuant to 5980, it may still find standing in section 382.
Is Section 5980 Exclusive, or Do Sections 5980 and Section 382 Work as Alternatives to One Another?
When determining the meaning of statutes, the courts seek to employ the underlying purpose of the legislature in enacting the statute. Statutory language is given its ordinary and plain understanding as much as possible, but if the language proves vague the court “may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history.” Mays v. City of Los Angeles (2008) 43 Cal.4th 313, 321. Looking at the language of section 5980, it definitely provides an HOA standing to sue on its own behalf as a real party in interest, but it does not go as far as to say that this is the exclusive method by which standing may be achieved. Because the statute does not state that the standing is exclusive to section 5980, the court declined to read a term into the statute that is not present. “The Legislature is deemed to be aware of laws in effect at the time they enact new laws and is conclusively presumed to have enacted the new laws in light of existing laws having direct bearing upon them.” Burd v. Barkley Court Reporters. Inc. (2017) 17 Cal. App.5th 1037, 1047.
The court here concluded that if the Legislature intended 5980 to be the only source of standing for HOAs it would have clearly specified such a mandate. Since it did not, the court ruled that it did not intend it to be an exclusive source of standing. Section 382 and section 5980 allow for two alternative ways for an HOA to assert standing and file a lawsuit on behalf of its members. Section 382 allows an HOA to bring a representative action on behalf of its members if they are “an ascertainable class and have a well-defined community of interest in the questions of law and fact involved and considerations of necessity, convenience, and justice.” The court found no reason why the two sections could not operate concurrently. The inability to establish standing under one, should not exhaust the option of establishing standing under the other.
In addition, the Right to Repair Act incorporates section 5980’s requirements for standing. “The Right to Repair Act provides virtually the exclusive remedy for construction defect claims, and the Legislature’s intent in enacting it was to reshape rules governing construction defect actions.” McMillan, supra 4 Cal. 5th at 788. The court here stated, “Although the Right to Repair Act is the exclusive vehicle for asserting certain claims, it is not the exclusive vehicle for asserting all claims. It expressly states that this title does not apply to any action by a claimant to enforce a contract or express contractual provision, or any action or fraud.” Civ. Code §943, subd.(a). In effect, this means that a plaintiff who does not have standing to bring a claim under the Right to Repair Act may still have standing to file a breach of contract or fraud claim if they can establish standing as a representative action according to section 382.
In the case at hand, the HOA’s first claim is expressly brought under the Right to Repair Act. The trial court correctly found that it lacked standing to sue for construction defects in individual units. It may, however, bring a claim for defects in the common areas. The causes of action for breach of contract, nondisclosure and misrepresentation (or fraud-related claims) are not subject to the Right to Repair Act. If the HOA can meet the standing requirements for a representative action under section 382, it may have standing for the breach of contract and fraud-related claims as to the individual units as well as the common areas. On remand, this is the primary question for the lower court to determine.
Primary Takeaways
- Under the Right to Repair Act, homeowner associations do not have standing to sue on behalf of members for construction defects present within the individual units, but may sue for defects in the common areas under certain circumstances.
- Homeowner associations bringing claims for breach of contract or fraud are not necessarily subject to the Right to Repair Act. If those claims qualify as representative actions, then the association may have standing to sue for issues in the common areas as well as the individual units pursuant to section 382 of the Civil Code.
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