David Bernardoni named a Partner

Kulik Gottesman Siegel & Ware LLP is pleased to announce that, effective March 1, 2016, David Bernardoni has been named a partner with the firm.  Mr. Bernardoni joined Kulik Gottesman Siegel & Ware LLP in July 2006.  Since that time has built a diverse civil litigation practice, which includes real estate, employment, homeowner association and other business matters.  He also provides general counsel services to many of his clients.  In 2013, Mr. Bernardoni was selected to the California Super Lawyers Rising Stars list.

California Court of Appeal Rules On Whether a Homeowners Association is Required to Accept Partial Payments

On October 14, 2014, the Court of Appeal issued a published decision in the case Huntington Continental Townhouse Association, Inc. v. Joseph A. Miner (Court of Appeal Case No. G049624).

The case addressed whether a homeowners association must accept partial payments to reduce delinquent assessments. The Court of Appeal held that under Civil Code section 5655(a), a homeowners association must accept a partial payment made by an owner and must apply that payment first to any assessments owed, and only after assessments are paid in full, then to the fees and costs of collection, attorney’s fees, late charges or interest. The Court further held that the obligation to accept partial payments continues after a lien has been recorded against an owner’s separate interest for collection of delinquent assessments. The practical effect of the Court’s holding is that if the partial payment brings the delinquent assessments to below $1,800, any pending foreclosure proceedings would be halted, and the homeowners association would have to start over with the appropriate foreclosure notices, if and when the delinquent assessments once again reach or exceed $1,800. This case will have an impact upon homeowners associations and their management companies who have historically refused to accept partial payments from homeowners once the account has been turned over to collections and/or a lien has been placed upon the owner’s property. In light of the Court’s ruling, the better practice is to accept a partial payment and to advise the homeowner that the association is not waiving any of its legal rights in collecting any unpaid debt.

California Supreme Court Articulates the Mixed Motive Defense for Employers

In the recent case of Harris v. City of Santa Monica, 56 Cal.4th 203 (2013), the California Supreme Court clarified the “mixed motive defense” that employers frequently use in litigation. The mixed motive defense generally applies where, although the plaintiff has shown an employer’s intentional discrimination, the employer has also proved it would have made the same adverse employment decision against the plaintiff even in the absence of any discrimination.

In Harris, the plaintiff was a bus driver for the City of Santa Monica and alleged she was fired because of her pregnancy in violation of California’s Fair Employment and Housing Act (FEHA). The City’s defense was that it had legitimate, nondiscriminatory reasons to fire Harris. The City asked the trial court to instruct the jury that if it found a mix of discriminatory and legitimate motives, the City could avoid liability by showing it had a legitimate reason to fire the plaintiff. The trial court refused the instruction and told the jury that plaintiff only had to prove that her pregnancy was “a motivating factor/reason for the discharge.” The jury found in favor of plaintiff and awarded her $177,905 in damages.

The California Supreme Court reversed the jury’s verdict and established important rules in mixed motive cases.

The Court held that the trial court’s jury instruction was incorrect. Instead of only having to prove that her pregnancy was “a motivating reason” for her discharge, the plaintiff should be required to prove that her pregnancy was “a substantial motivating reason” for her termination. If the plaintiff is able to do so, then the burden shifts to the employer to prove that it would have made the same decision in any case for non-discriminatory reasons.

The Court also determined what remedies, if any, are available to the plaintiff where the mixed motive defense applies. The Court held that, where the employer proves it would have made the same employment decision regardless of any discriminatory reason, the employee is not entitled to an order of reinstatement or backpay, and may not recover any damages from the employer. However, the Court did provide an employee with three types of remedies in such cases: declaratory relief (i.e., a judicial declaration of employer wrongdoing); injunctive relief (i.e., ordering an employer to stop discriminatory practices where appropriate); and an award of reasonable attorney’s fees expended to redress, prevent, or deter discrimination.

The Harris case is welcome news for employers because it increases the burden of proof that an employee must satisfy: the employee must prove that discrimination was a “substantial” motivating reason for termination, not just “a” motivating reason for termination. And significantly, if the employer proves it would have made the same employment decision for non-discriminatory reasons, the employee is not entitled to recover any monetary damages.

But as the Court observed, “the unavailability of damages upon an employer’s same-decision showing does not make a finding of unlawful discrimination an empty gesture.” An award of reasonable attorney’s fees to the plaintiff could be significant by itself.

Court Holds Homeowners Association May Exclude A Member’s Representative From Board Meetings

A new opinion published on June 20, 2013, holds that a homeowners association may exclude an owner’s representative from a board meeting because the representative was not “member” as defined by the association’s governing documents. In SB Liberty, LLC v. Isle Verde Association, Inc., the homeowner formed a limited liability company (“SB Liberty”) to hold title to their single-family residence. Following a dispute with their homeowners association, the homeowners, via SB Liberty, executed a power of attorney to provide their attorney with the right to attend and participate at board meetings. Following the Association’s refusal to allow the attorney to attend a board meeting SB Liberty filed a lawsuit and sought a preliminary injunction to enjoin the association from preventing the attorney from attending board meetings. In its opinion, the California Court of Appeal found that the association’s governing documents provided that only members could attend board meetings, and that an attorney could not be considered a “member” within the meaning of the governing documents. Therefore, the Court of Appeal affirmed the trial court’s decision denying SB Liberty’s preliminary injunction motion.

Beware: Independent Contractors May Not Be So Independent

HOA’s Maybe Liable For The Acts of an Independent Contractor

Conventional wisdom has often assumed that when an HOA hires and independent contractor that the HOA will not be liable if the contractor is negligent and harms someone. After all, the contractor is “independent” and why should the HOA be liable when the contractor, over whom it supposedly has no control, causes such harm?

In the Affan decision, the California Court of Appeal, briefly discusses this issue in an otherwise extensive decision. Yet, the brief discussion of this narrow issue is often overlooked. It is extremely important to recognize that the principle announced in the case may be the basis for triggering huge monetary liabilities on HOA’s.

The Facts
For years, Akil and Cenan Affan, owners of units at the Portofino Cove condominium complex suffered damage as a result of sewage back-ups and flooding. They bought their unit in 1986. Their permanent residence was in Arizona, but they vacationed a few weeks a year at Portofino Cove. From 1999 to 2005, every time they visited their unit, they found sewage residue in the sink in their kitchen or tub in their bathroom. They consistently reported the problems, and after each back-up, the Association manager hired a plumber to snake the drain line. However, the plumber – an independent contractor – did not clean the pipes properly. Specifically the court, summarizing the testimony of an expert, stated: “the [plumber] used the wrong equipment to clear the main lines the [plumber] should have used a ‘scour jet’ with a motorized spinning head for mechanical boring, rather then simply trying to hydro-jet the lines…”

While one can presumably understand why the plumber contractor might be liable based on the foregoing description of its work. But why should the HOA be liable? According to the Court of Appeal decision, the Association could be liable for the acts of the plumber on the basis that the pipe repair is a “non-delegable” duty. That is, even if the HOA was not negligent, if its plumber, an independent contractor, caused damage, the Association could be “vicariously liable” for the plumber’s negligence.

It is important to note that this Court’s ruling with regard to “non delegable” duty did not go so far as to hold that the HOA was, in fact, liable. Rather, the Court remanded the case to the trial court for a new trail on this issue.

Yet the ruling is clear: yes, an Association may be liable for the acts of an independent contractor. The lesson is likewise clear: (1) do not assume that hiring any independent contractor is a sure way to limit liability; (2) having competent, licensed, insured contractors is crucial; (3) if possible, make sure the HOA is an additional insured on the contractor’s general liability policy and that the Association is contractually indemnified by the contractor; and (4) exercise reasonable due diligence in investigating and hiring the contractor.

Thou Shall Not E-Mail!

For better or worse, E-Mail has changed how common interest developments are governed. It has enabled more volunteer Board members to actively participate in the day to day operation of their common interest developments. Through the use of E-mail, Board members instantly can be apprised by their managing agents as to the status of construction, maintenance efforts, landscaping, homeowner complaints, and collection efforts. Rather than mailing opinion letters or litigation documents to the property manager for their submission to the Board at a later date, lawyers can E-mail such information to the Board members upon receipt.

The receipt of such transmissions can, and often does, provoke immediate thought and discussion among Board members regarding the information provided. Such discussion typically is helpful in promptly gathering information, addressing legal issues, developing strategies, settling disputes, and directing the conduct of Association’s attorneys, managing agents and vendors. Starting January 1, 2012, however, Board members may receive E-mail communications from their managing agents, vendors, and attorneys, but they will be unable to respond to each other regarding these communications

In response to complaints of “secret” Board meetings, the California legislature has passed a bill which if, as expected, is executed by Governor Brown will ban volunteer Directors from discussing, outside of a Board meeting, “any action within the authority of the board except those . . . validly delegated to any other person or persons, managing agent, officer of the association, or committee. . . .” Association, furthermore, is expressly barred from discussing business and making decisions via a series of electronic transmissions. The one exception to this rule is that a Board may conduct an emergency meeting via E-mail if “all” Board members consent to such a electronic conference. (The Directors’ written consents must be filed in the Association’s minutes.)

This E-mail ban may slow down and increase the cost of Association governance. It likely will necessitate more special executive session meetings to address issues that arise in between regularly scheduled meetings. Except for emergency meetings, the Association now must provide its members with at least two days prior notice of an executive session meeting. Unless the homeowner expressly consents to E-mail notice, the Association must bear the cost to provide notice of executive session meetings by mail or hand delivery. While members are not entitled to attend executive session meetings, they are now entitled under the new law to obtain copies of executive session agendas upon request.

While the bill authorizes homeowner Boards to conduct meetings telephonically, the Association still must give written notice of the meetings to the members, four days for open meetings and two days for executive session. If a Board decides to do so, the notice must specify the physical location of at least one participating director and permit the members to listen to, and participate in, the teleconference at that location.

Only time will tell if this statutory amendment will accomplish its stated goal of achieving governing “transparency.” Somehow, it seems doubtful that homeowners sending emails to their volunteer Board members demanding that mold in their unit be abated immediately will be happy to wait until the next Board meeting for the Board to discuss such a request. To the contrary, it is not difficult to imagine that in this litigation happy society a Director’s response that “I am legally prohibited from speaking with other Board members in the interim period,” will be answered with a summons and complaint. The Director then will be faced with the conundrum of what to do with the complaint if he cannot discuss it with his/her fellow directors.

Association Liability for Criminal Acts Causing Loss or Damage to Owner Property

In 1986, the California Supreme Court issued its ruling in Frances T. v. Village Green Owners Association. That decision – which has been the subject of critical commentary – holds that an association and its individual Board members can, in certain circumstances, be liable for bodily injuries sustained by a homeowner arising from a criminal assault by an unknown intruder.

Surprisingly, there have been few reported cases from the California appellate courts since Frances T. to provide trial courts with guidance in determining the liability of homeowners associations with regard to criminal acts of third parties. One issue, in particular, still has not been directly addressed. That is, what liability does an association face by a homeowner who claims that his/her personal property was damaged or stolen from the property?

For example, what exposure does the association face when an owner’s unit is burglarized by an unknown intruder, or when an owner’s automobile tires are slashed? Property damage claims such as these continue to plague associations. Yet the Frances T. decision and an often overlooked appellate case actually provide guidance on this issue, and support the proposition that an association (and its directors) may not be liable.

First, what happened in Frances T.? Briefly, the Court, analogizing an owner/homeowners association to a landlord/tenant relationship, held that the plaintiff unit owner, who was allegedly sexually assaulted in the association common area, could pursue a claim against the association. She would have to prove, among other things, that the association and its directors, with knowledge of criminal activity in the area, negligently ordered the plaintiff to turn off exterior lighting. The Court held that despite the Board’s right to control common area lighting, it nonetheless could be held negligent for refusing to allow plaintiff to have operating lighting outside her unit.

The Court’s reliance on the landlord/tenant analogy was based upon the argument that an association, like a landlord, controls common areas over which owners (in an association) or tenants (in apartment or commercial settings) have no control. Thus, by analogizing to landlord/tenant cases, the Court found a basis in Frances T. to allow the plaintiff to pursue her claim against the association. The alleged facts were admittedly compelling, i.e., that the association knew that the property was in a high crime area; numerous letters had been written to the Board regarding criminal activity; the Board itself acknowledged the need for better lighting, etc.

It is clear from the Frances T. decision that the Court’s rationale rested, in part, on the serious bodily injury that the plaintiff had sustained, and the apparent public policy to afford relief to a homeowner that is physically injured in this manner.

But what is the law when an owner is not physically injured, but sustains a property loss?

The answer to that may be found, not in a case involving a homeowners association, but, again, by analogizing to legal authority in a landlord/tenant context. In Royal Neckware Company, Inc. v. Century City, Inc., a tenant in a commercial building in Century City, sued the landlord for failing to provide adequate security services. The tenant alleged that as a result of inadequate security, the tenant’s store was burglarized. Over $200,000 in clothing and jewelry was stolen.

Despite the tenant’s reliance on the Frances T. case and other decisions, the Court stated that the tenant could not pursue this claim. The Court emphasized that Frances T. (and other cases relied upon by the tenant) “speak[s] to the duty of a landlord to safeguard its tenant’s safety.” The Court implicitly recognized that there is a fundamentally different public interest in protection against physical harm as opposed to bodily injury.

Thus, again, by analogizing to the Royal Neckware case (a landlord/tenant matter), which itself relied on Frances T. (a homeowners association case), one can make the very compelling argument that neither an association nor its Board can be liable pursuant to a theory of negligence when an owner’s personal property has been stolen or damaged.

March 2013 Cut-off for Objections to New Top Level Domain Names

The Internet Corporation for Assigned Names and Numbers (ICANN) will be issuing new generic top level domain names (gTLDs), like .sport or .hotel, to applicants later this year. Although the availability of generic top level domains is applauded by some because they will give companies another means to control their brand, others fear it will confuse consumers and create more venues for cybersquatting.

The deadline for objections to the new gTLDs is March 13, 2013.
The Domain Name System and Cybersquatting

Instead of memorizing a string of numbers to point to a website, the domain name system (DNS) allows us to point to websites using language that is more meaningful to us, like www.LAIPLA.net. DNS creates a logical hierarchical system. The top level domain name is at the top of the naming hierarchy and appears on the right most section of a domain name, for example, here it would be .net. The next level is the second-level domain name, LAIPLA.

By registering a gTLD an entity will be controlling its own registry, subject to an agreement with ICANN. This could make it more difficult for trademark holders to protect their marks against cybersquatting because it will be challenging for them to police their marks for every new domain that is registered with the gTLD. There are about 1900 active applications for gTLDs. The list of applications is available on ICANN’s webste. However, if the costs for registering a domain with the new gTLDs are substantially higher than the fees that cybersquatters are accustomed to, it is possible that the economics will not make sense for cybersquatters.
Grounds for Objections

There are four grounds to object to a gTLD, including string confusion, legal rights, limited public interest, and a community objection. A string confusion objection applies when the applied for gTLD creates a likelihood of confusion with an existing TLD or another applied for gTLD. A legal rights objection applies when the applied for gTLD infringes the legal rights of the objector. A limited public interest objection applies when the applied for gTLD would violate the accepted legal norms of morality and public order of international law. Finally, the community objection applies when there is substantial opposition to the applied for gTLD from the community to which the gTLD is targeted, and this objection must be brought by a member of this community.

Objecting parties should file with the following organizations, depending on what ground they are objecting: The International Centre for Dispute Resolution for string confusion objections; The Arbitration and Mediation Center for the World Intellectual Property Organization for legal rights Objections; The International Center of Expertise of the International Chamber of Commerce for limited public Interest and community objections.