Issue By:  J. Stephanie Krmpotic

Ziani Homeowners Association v. Brookfield Ziani LLC, et al.

Court Of Appeal, Fourth Appellate District, Division Three

(December 22, 2015)

The Court of Appeal considered the issue of timeliness of a motion to intervene by individual homeowners in a suit filed by the Homeowners Association (“HOA”) to recover damages for construction defects.  The Court of Appeal addressed the issue of timeliness of the motion, and determined that the appropriate standard was when the individual intervenors became aware “that their interests were no longer being adequately protected by the parties to the litigation.”

In 2003 and 2004, Brookfield Ziani LLC (“Brookfield”) constructed a condominium development in Newport Coast, an affluent area south of Newport Beach, California.  In 2012, the HOA sued Brookfield, alleging construction defects.  Plumbing repairs were the largest aspect of the claim and included plumbing defects as to both common areas and individual homeowners’ units.  The unit owners were responsible for the cost of plumbing repairs in their individual units, and the HOA was responsible for the cost of plumbing repairs in the common areas.  The HOA filed the complaint on behalf of all condominium owners, alleging in the complaint that it had the “sole and exclusive right and duty to manage, operate, control, repair, replace and restore the condominium development . . . ”  The HOA also asserted that it had the right to pursue damages not limited to the common area, but also “the separate interests which the HOA was obligated to maintain, repair, and/or damages to the separate interests within the HOA’s common interests, power and standing.”

For two years while the litigation was progressing, the HOA Board of Directors and its attorney pursued the plumbing defect claims, providing updates during HOA meetings.  Representations were also made that the plumbing defect claims would not settle until a full recovery was obtained to pay for the necessary repairs to the common areas and individual units.

The case was set for trial the Summer of 2014, and in March, 2014, the HOA advised the individual homeowners that a settlement had been reached.  The specific terms of the settlement were not provided to the individual homeowners until April 2014, and the attorney for the HOA stated for the first time on April 22, 2014 that certain individual homeowners would incur some out-of-pocket expenses for the plumbing repairs, a special HOA assessment and depleted HOA reserves.  In May 2014, individual homeowners filed a motion seeking permissive intervention under Code of Civil Procedure § 387(a) and mandatory intervention under Code of Civil Procedure § 387(b) on that basis that:  (1) the individual homeowners had a direct and immediate financial interest in the litigation; (2) the proposed settlement would impair or impede their ability to protect their interests; (3) that the HOA Board and its counsel were no longer adequately representing their interests; and (4) that the motion was timely because it was filed promptly after learning the HOA Board and its counsel were no longer representing their individual interests.

Permissive intervention additionally required a showing that intervention would not enlarge the issues in the case and that the benefit allowing intervention outweighed the HOA’s interest in controlling the litigation.

The trial court denied the motion to intervene on the basis that the individual homeowners failed to file a timely application because they knew, or should have known, about the litigation when the complaint was filed.  The Appellate Court found that the trial court erred in determining timeliness based on the filing of the complaint.

The Appellate Court noted a lack of decisional authority in California on the issue of timeliness for intervention under Code of Civil Procedure § 387, but commented that the rule was “virtually identical” to Rule 24 of the Federal Rules of Civil Procedure.  Accordingly, the Court applied the federal court standard that “the date the person attempting to intervene should have been aware his interest[s] would no longer be protected adequately by the parties, rather than the date the person learned of the litigation,” was the appropriate standard for determining timeliness.

The date the individual homeowners knew that their interests in the litigation were not being adequately represented by the HOA was when they learned of the specific settlement terms in the action, and on that basis, the motion was deemed timely.  The Appellate Court held that the issue of timeliness was to be decided first, and remanded the motion for the trial court to then make a factual finding on the other elements of the motion.

COMMENT

This case holds that the parties will be allowed to intervene in an action when they knew or should have known that their interests were not being represented, which may occur substantially after the litigation is initiated.  This case is likely to be followed by other appellate jurisdictions.

For a copy of the complete decision, see:

Ziani v. Brookfield

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