July 30th 1999
Daily
Joumal Staft Writer
"Buying a home here was like the start of a new life," recalls Chris Besser, an automobile salesman who is one of more than 800 residents of the lushly landscaped, 260unit complex near the Ronald Reagan Freeway. Le Parc's condos average $85,000 in value.
But these days, Besser and other Le Parc owners may be facing the loss of their homes -- the fallout of a legal debacle that could affect the 6 million residents of so-called common-interest developments throughout the state.
A year after an arbitrator awarded a construction company $6.6 million in contract payments and tort damages against the Le Parc homeowners' asso-ciation, the individual homeowners themselves are under a court order to satisfy the judgment in favor of ZM Corp.
Through a court-appointed receiver, ZM has been collecting both the dues that homeowners pay for maintaining the complex and a special monthly assessment of $166. Notices of liens have already been mailed to those unwilling to make payments.
According to association attorney James E Lingl of Knofler & Robertsonin Camarillo, the assessment is an "unconstitutional taking" of property for which there is no legal precedent "Ihis undermines the whole principle ofaffordable housing," he complained.
Other condominium law experts agree. "To assess individual homeowners for the wrong doings of the [association] makes no sense”, argued Richard Neuland of Neuland, Nordberg & Andrews in Rancho Santa Margarita
However, during a marathon legal battle that has so far involved 19 lawfirms, two Ventura County judges have repeatedly sided with ZM. And with various issues now heading for an appeal court, the contractor shows nosigns of backing down. 'This is the kind of war where the carnage is huge," said the company's lead attorney, Glenn J. Campbell."But we had no choice."
Until its dispute with ZM, Le Parc was typical of California's fastest-growing form of housing -- the state now has an estimated 30,000 common-interest developments.
The homeowners' association assessed the maintenance dues,
hired contractors and enforced the complex's legalcode, known as covenants,
conditions and restrictions.
At an arbitration hearing that began in September1995, ZM charged that Le Parc had withheld contract payments. In a Ventura County Superior Court suit, the board tried to block the arbitration, claiming the contract was void because, among other things, ZM did not have a valid contractor's license.
"ZM was nothing more than a smoke-and-mirrors contractor," the plaintiffs' attorneys alleged in the case of Simi Valley Le Parc Homeowners Association v. ZM Corp.,CIV159037.
Le Parc's case, however, went up in smoke. After a bench trial, Superior Court Judge John J. Hunter validated the contract in Octobei 1996 and ordered the arbitration to resume. As the hearings dragged on, eventually consuming 84 days, and legal fees piled up, the association filed for bankruptcy protection in July 1997.
A year later, arbitrator Nicholas J. Toghia found Le Parc liable for $2.5 million in contract payments and legal expenses and another $4.1 million for defamation and other tort claims arising out of the board's alleged efforts to "get rid of" QwikResponse in favor of a lower-cost contractor. According to Campbell, his client was"defamed into functional oblivion."
After Hunter confirmed the judgment, Le Parc filed an appeal. That, however, did not stay the judgment, which also began accumulating interest. Worse still for the association, its insurance claim was denied and, on Jan.27, a federal judge dismissed its bankruptcy petition.
During the Chapter 11 proceeding, ZM had proposed that the court levy a special assessment on the individual homeowners as a means of collecting the judgment Itsattorneys cited Civil Code Section 1366(b), which allows such assessments for "an extraordinary expense required by an order of a court" Chief Judge Geraldine Mund declined to grant that order, remanding the issues to state court
In that arena, ZM has enjoyed a string of successes that the
homeowners claim has brought them to the brink of ruin. "You tell people about it and they say, That can't be
possible,"' lamented homeowner Steve Venezia.
As early as Jan. 29, Hunter approved ZM's request for the appointment of a receiver The receiver, Jeff Becker, was authorized to apply each homeowner's regular maintenance assessment -- an average of $166.35 a month --to the judgment. After association attorneys’ complained there was nothing left to pay the complex's bills, Hunter refused to modify his order.
"They're going to suffer the consequences of the acts of the board of directors," the judge said of the homeowners.
On March 31, the homeowners took an extraordinary step, essentially firing their board in order to form a new Le Parc Community Association. Two days later, ZM dropped its own bombshell, a motion seeking a court-ordered special assessment. According to its lawyers, the new association was "a palpable fraud" designed to evade the judgment.
"Only Lewis Carroll could countenance this sleight ofhand," Campbell, a partner at Lowthorp, Richards, McMil-lan, Miller, Conway, Tempieman of Oxnard, wrote in a brief. "Alice may be in Wonderland, but this court is not"
At a pivotal hearing June 4, Superior Court JudgeThomas J. Hutchins, to whom the case had been reassigned, heard the special assessment issue and another ZM motion to amend the judgment so it would apply to the community association. The homeowners, who were hoping the new judge would take a more sympathetic view than Hunter, were sorely disappointed.
The new association, Hutchins ruled the following week, was created "for the very purpose of avoiding the ZM judgment" Moreover, he said, the ability to assess homeowners for liability awards against their associationwas expressly "recognized in California case law."
In 1992, an appeal court ruled in a personal injury case that owners who delegate control and management of property to an association are liable for its tortious act and omissions. Ruoff v. Harbor Creek Community Association, 10 Cal.App.4th 1624. Lingl, Le Parc homeownen association's attorney, argues that Ruoff was never meant to apply to injuries that do not occur on the property itself
'That cannot be the law, the attorney, who came onte the
case during the bankruptcy proceedings, said in a interview. 'This goes to the core of what associations are all about and
how they operate."
Campbell sees no distinction. "Defamation is as much a personal injury as a broken leg," he said. He also notes that the homeowners benefited from the improvementr that the contractor made to their property. "For them to be crying crocodile tears now ... is patently false."
A petition for a writ overturning the receiver's appoint ment is already pending before the 2nd District Court o Appeal in Ventura. Appeals of Hutchins' rulings are likely to follow. If they are upheld, some attornevs predict dire consequences for common-interest developments.
"If people know about this, it will create a chilling effect on people wanting to buy into common-interest developments," said Darren M. Larsen, a Camarillo attorney representing a group of Le Parc homeowners. "They need to know that they do have limited liability."
Richard Neuland says such a scenario had only been the
subject of cocktail party speculation. 'This is the first time it has moved to
the real world. It should be frightening to everybody."
At Simi Valley Le Parc, meanwhile, some of the owners are wondering what will be left of the complex by the time the appeals are adjudicated. On a recent visit, a swimming pool was closed and notices warned that gas service would be discontinued unless the complex's bill: was paid in full.
"Rome is burning," observed community association president Ferenc Gutai, who has organized a march Saturday in Simi Valley to pressure Le Parc's insurer into paying the judgment
As for Chris Besser, he has stopped paying his association
dues. 'The money isn't going to clean my pool or pay the water bill," he
explained. "I’11 take the risk of a lien." He
added: "My home's worth nothing because I.can't sell it"