Peters & Freedman, L.L.P.

The issue of view preservation is often a hotly contested subject.  Owners with trees and owners with views are often at odds with one another regarding their respective rights.  This issue is not unique to homeowners associations.  Earlier this year, the city of Encinitas found itself in the middle of this dispute when, after cutting down 10 trees in one of the city’s parks to preserve neighboring residents’ views, a man sat in the 11th tree for a week in an effort to stop the inevitable chopping.

SUMMARY OF THE DECISION

This issue of trees vs. views was the subject of Eckstrom v. Marquesa at Monarch Beach Homeowners Association (2008) 168 Cal. App. 4th 1111, a recent appellate court decision. Individual homeowners in a common interest development that was comprised of single family homes sued the Marquesa at Monarch Beach Homeowners Association (“Association”) regarding palm trees that had grown to heights exceeding the rooftops and were blocking their views. The CC&Rs provided that all trees on a lot had to be trimmed so as to not exceed the roof of the house unless the tree did not obstruct views from other lots.  The provision further gave the determination of whether trees obstructed views to the sole judgment of the association’s architectural committee.

The Association’s Board (including one member who had over 20 palm trees on his lot) took the position that, because trimming a palm tree would effectively require its removal, the CC&R requirement did not apply to palm trees.  The Board refused to enforce the “view” provision of the CC&Rs against owners who had planted palm trees.  The Board had also adopted a definition of “view” that was very narrowly construed so that it could not apply to require the trimming or removal of palm trees.

The trial court ruled in favor of the individual owners and ordered the Association to enforce its CC&Rs.  The Association argued that its decision to exclude palm trees and define “view” was a business judgment decision and should be given judicial deference, as established in the case of Lamden v. La Jolla Shores Clubdominion Homeowners Assn.  (1999)  21 Cal. 4th 249:

Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions . . . courts should defer to the board’s authority and presumed expertise.

The appellate court rejected the Association’s argument and concluded that Lamden was not applicable.  The Court determined that the Association’s policy of excepting all palm trees was in conflict with the express provisions of the CC&Rs that trees need to be trimmed so as to not obscure views.   The court further ruled that judicial deference also did not apply to new rules enacted by the Board since they rendered the view provision of the CC&Rs meaningless.  The Court also noted that, in this case, the CC&Rs did not give the Board discretion to make a decision that palm trees were not subject to the CC&R provision.

The Association further argued that the judgment of the trial court should not be upheld because it was unclear as to what it was being ordered to do.  In rejecting this argument, the Court of Appeal noted that the Association simply had comply with its obligations imposed under the CC&Rs and exercise its “good faith” discretion” to determine which trees obstructed the Plaintiffs’ views and then undertake the procedures outlined in the CC&Rs to enforce those provisions.  Because the Association had never attempted to determine which palm trees obstructed views, the Court indicated that is where the Association should begin.

IMPACT OF THIS DECISION FOR HOMEOWNERS ASSOCIATIONS

This case is important for homeowners associations because it holds that an Association’s decision which directly conflicts with the CC&Rs will not be upheld.  What is problematic about this case is that the trial court’s definition of the terms “view” and “obstruct” are very broad:

The word “[obstruct] means to block from sight or be in the way of (and thus even one palm frond would block some portion of a view)” and the term “[view] means that which is visible to the naked eye while standing, sitting or lying down anywhere in one’s home, or anywhere on one’s Lot, looking in any direction one wishes.

It should also be noted that this decision does not prevent an Association from amending its view protection provisions.  If your association has view preservation language, it is important to consult with your legal counsel prior to making decisions regarding enforcing or amending the same.

The issue of whether a corporate director has the right to inspect documents protected by the attorney-client privilege in a lawsuit the director had filed against the corporation was addressed in the recent case of Tritek Telecom., Inc. v. Sup. Ct. (2009) 169 Cal.App.4th 1385.

Tritek, a California corporation, was sued by Mak, a shareholder and board member.  During the lawsuit, Mak wanted to review corporate documents that were protected by the attorney-client privilege.  When Tritek’s other directors refused to give Mak the corporate documents, Mak sought relief from the Superior Court.  Tritek objected, claiming the documents fell under the attorney-client privilege.  The Superior Court denied Tritek’s objections and ordered the corporation to produce the documents.  Tritek then sought relief from the Court of Appeal.

A corporate director owes a fiduciary duty of care to the corporation and its shareholders and must serve in good faith in a manner the director believes to be in the best interests of the corporation and its shareholders.  It is generally presumed that directors of a corporation are acting in good faith.  Corporate directors have the absolute right, at any reasonable time, to inspect and copy corporate books, records and documents.  This right represents a legislative judgment that directors are better able to discharge their fiduciary duties if they have free access to information concerning the corporation.

In reviewing this case, the Appellate Court recognized that the right of a director to free access of information is subject to exceptions and may be denied where a disgruntled director announces his or her intention to violate his or her fiduciary duties to the corporation.

Here, because Mak’s lawsuit against Tritek was filed in Mak’s capacity as a shareholder and prior to asking for the corporate records in his role as a director, the Court found that Mak was not a “disinterested” director and therefore the presumption of good faith did not apply.  The Court determined that enforcing Mak’s “absolute” inspection rights was problematic because it would give him access to documents he could not obtain via discovery in the shareholder action.  The filing of the shareholder action made Mak an adversary of the corporation.  In so ruling, the Court stated:

Mak cannot take off his “shareholder’s hat” and swap it for his “director’s hat” and claim an absolute right to access all corporate documents.

The Court of Appeal held that in this situation, a court may properly limit a director’s inspection rights because the director’s loyalties are divided and documents obtained by a director in his or her capacity as a director could be used to advance the director’s personal interests in obtaining damages against the corporation.

This case is important for homeowners associations because it sets forth the premise that a director who is involved in litigation against the association would not have the right to access documents covered by the attorney-client privilege where they could be used to advance the director’s personal interests in obtaining damages against the corporation.  If an association is involved in a dispute with a director and receives a request from the director to review documents subject to the attorney-client privilege, the association should consult its legal counsel regarding whether or not to disclose those documents.

It is that time of year again; time for associations to being preparing their budgets.  Starting on January 1, 2009 associations are now required to also distribute a “reserve funding plan” summary to membership.  Associations are required to have a reserve study completed every three years.  Under Civil Code Section 1365(b) a summary of the reserve funding plan must be distributed to the association’s members annually with the budget.  We urge all associations to start their budgets early and to complete this reserve funding plan or have the association’s reserve study analyst complete this plan for the association.