Opinion
D071231
02-08-2018
JAMES SARNECKY et al., Plaintiffs and Appellants, v. D'AMATO CONVERSANO, INC., Defendant and Respondent.
Aguirre & Severson, Michael J. Aguirre and Maria C. Severson for Plaintiffs and Appellants. Dunn, DeSantis, Walt & Kendrick, Kevin V. DeSantis and David D. Cardone for Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2010-00092634-CU-OR-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Joan M. Lewis, Judge. Affirmed. Aguirre & Severson, Michael J. Aguirre and Maria C. Severson for Plaintiffs and Appellants. Dunn, DeSantis, Walt & Kendrick, Kevin V. DeSantis and David D. Cardone for Defendant and Appellant.
Current and former owners of 33 condominiums in the 138-unit Seahaus common interest development in La Jolla, California sued the structural engineer, builder, and other entities after they learned about common-area construction defects caused during the building phase. Plaintiffs claimed they purchased their units relying on certain representations about the quality of construction. D'Amato Conversano, Inc. (DCI), the structural engineer, moved for summary judgment on the ground that plaintiffs had expressly assigned their claims to the Seahaus La Jolla Owners Association (the HOA) and therefore lacked standing. Pointing out that the HOA had sued over the same defects, DCI further argued plaintiffs were engaging in improper claim splitting. The trial court agreed and entered summary judgment. Plaintiffs contend the trial court misconstrued their claims and assert that they seek to recover only damages to their individual units.
We conclude that summary judgment was properly granted. Plaintiffs bought their units subject to a Declaration of Covenants, Conditions, and Restrictions (CC&R's) that governed the common interest development. Pursuant to the CC&R's, plaintiffs assigned to the HOA all damage claims relating in any way to common area construction defects. They therefore lack standing to pursue such claims against DCI.
FACTUAL AND PROCEDURAL BACKGROUND
In their operative Seventh Amended Complaint, plaintiffs allege that the builder and developer of the Seahaus La Jolla project rushed construction between 2004 and 2005, leading to serious structural defects in all of the buildings. Most significantly, the beams used to frame the 13 buildings in the Seahaus development were exposed to rainwater for prolonged periods of time, resulting in extensive water damage.
DCI joined the team in 2004 as the structural engineer. During site visits in 2004 and 2005 it documented several substandard building practices by Webcor (the builder) and various construction entities. In one email, DCI's project manager complained, "Webcor has been getting into the habit of just guessing where things go instead of asking for clarifications or direction or looking at the details." In another, a DCI employee reported that Webcor was "not framing the floors per our drawings," leaving DCI to "spend[] a lot of time coming up with ways to fix what they missed on the plans." DCI urged Webcor to "fire both the framer and the plumber and get somebody [new] in who know[s] what they are doing." Despite these shortcomings, DCI certified in two 2005 letters to the City of San Diego that the buildings conformed with City-approved plans.
Plaintiffs purchased their units between May 2005 and January 2007. When they bought their units, each plaintiff became a member of the HOA and agreed to be bound by the CC&R's. As we will discuss, the CC&R's contain an assignment provision that gives the HOA "the power . . . to initiate . . . matters pertaining to . . . any and all claims, causes of action, damages and suits for defects relating in any way to the design or construction of the . . . Common Area or any portion thereof, on behalf of the Owners."
In 2009 the HOA sued DCI, Webcor, the developers, and other entities for damages relating to common-area construction defects. (Seahaus La Jolla Owners Association v. La Jolla View Ltd., LLC (Super. Ct. San Diego County, No. 37-2009-00095253-CU-CD-CTL).) The HOA sought damages in excess of $65 million to cover the cost of repairing common-area components.
Plaintiffs discovered defendants' alleged fraud in 2010 and filed a companion lawsuit to the HOA action "to recover those damages that cannot be recovered by the [HOA]"—i.e., "damages associated with their own interests, separate and apart from their fractional interests in the common area property." (Sarnecky v. CLB Partners, LTD (Super. Ct. San Diego County, No. 37-2010-00092634-CU-OR-CTL).) In their operative complaint, plaintiffs allege DCI conspired with the builder and developers to misrepresent and conceal known construction defects, including extensive water damage to the structural beams. They claim they bought their units relying on slick marketing materials that promoted the Seahaus development as "high quality" and meeting "the highest construction standards." Now they claim they cannot sell their units without informing prospective buyers about the construction defects and deviations from approved plans.
Plaintiffs concede that the underlying construction defects between their action and the HOA action are the same. As their counsel explained at a hearing, "[t]he distinction is not about different defects" but rather "about different damages and what the defects caused"—plaintiffs seek to recover "the ripple effect" of common-area construction defects through their separate suit. The two cases were coordinated for discovery purposes. The HOA action settled for approximately $16 million in 2014.
During oral argument, plaintiffs' counsel suggested we disregard this admission as applicable solely to claims alleged in an earlier complaint and since abandoned. But even if we were to do so, a review of the operative complaint leads to the same inescapable conclusion. The HOA alleged DCI misrepresented or failed to disclose "material framing deficiencies" that were revealed in "a series of field reports." These included "deficiently constructed shear walls, hold downs, and the cutting and coring of major structural beams, joists, and shear walls throughout the project," as well as framing problems "throughout a number of buildings and exterior walkways." Plaintiffs base their claims against DCI on these same problems and rely on the same field reports. Plaintiffs' central premise is that a significant number of beams used to frame the Seahaus buildings were exposed to excessive moisture. As their complaint makes clear, the key difference between the actions is not the type of defect but rather the measure of damages; plaintiffs seek "to recover those damages that cannot be recovered by the [HOA]."
Meanwhile, DCI, Webcor, and the developers moved for summary judgment, arguing plaintiffs lacked standing given the assignment provision in the CC&R's. The motions were heard separately, and the court heard the developers' motion first. It granted summary judgment and stayed proceedings on DCI's and Webcor's similar motions pending plaintiffs' appeal as to the developers (Sarnecky v. CLB Partners, LTD, Limited Partnership (D066385, app. dsm. March 9, 2016)). Plaintiffs settled with the developers and dismissed their appeal. The trial court then lifted the stay and awarded summary judgment to DCI and Webcor on identical standing grounds. Plaintiffs appealed both rulings but later dismissed their appeal as to Webcor. The sole ruling before us is the award of summary judgment to DCI.
DISCUSSION
"Standing is a threshold issue, because without it no justiciable controversy exists." (Iglesia Evangelica Latina, Inc. v. Southern Pacific Latin American Dist. of the Assemblies of God (2009) 173 Cal.App.4th 420, 445.) "Standing goes to the existence of a cause of action." (Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2006) 136 Cal.App.4th 119, 128.) Pursuant to Code of Civil Procedure section 367, "[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute." "A 'real party in interest' is generally defined as 'the person possessing the right sued upon by reason of the substantive law.' " (Windham at Carmel Mountain Ranch Assn. v. Superior Court (2003) 109 Cal.App.4th 1162, 1172 (Windham).) In other words, it is the person " 'who has title to the cause of action, i.e., the one who has the right to maintain the cause of action.' " (Ibid.)
The trial court granted summary judgment to DCI on standing grounds, concluding plaintiffs had assigned their damages claims relating to common area construction defects to the HOA, making the HOA the real party in interest. It concluded "the CC&R's granted standing to the homeowners association to pursue the claims [that are] the subject of this action" and further noted that the HOA "did pursue its claims for construction defects in the Seahaus case." Because plaintiffs could not sever their "fraud damages" claim from the claims in the HOA action, the court also concluded they were improperly splitting their claims.
Plaintiffs argue the trial court misconstrued the assignment provision in the CC&R's, which they claim confers no new rights to the HOA. They contend they did not assign their rights to sue for individual damage to their units caused by common area construction defects. DCI, in turn, urges us to reject plaintiffs' proposed construction of the CC&R's as "tortured and legally unsupported." It suggests that collateral estoppel and the rule against claim splitting provide further grounds to affirm the judgment.
A trial court must grant summary judgment if the record demonstrates that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law. (Code Civ. Proc. § 437c, subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) On appeal, we apply independent review to the grant of summary judgment, "considering all of the evidence the parties offered in connection with the motion (except that which the trial court properly excluded) and the uncontradicted inferences the evidence reasonably supports." (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476.) We apply the same three step analysis required of the trial court to "(1) identify the pleaded issues, (2) determine if the defense has negated an element of the plaintiff's case or established a complete defense, and if and only if so, (3) determine if the plaintiff has raised a triable issue of fact." (Meddock v. County of Yolo (2013) 220 Cal.App.4th 170, 175.)
As we explain, we lack an adequate record to decide whether collateral estoppel applies. Summary judgment is not proper on claim-splitting grounds, but it is proper on standing grounds. The clear language of the assignment provision in the CC&R's indicates that plaintiffs assigned to the HOA the claims they now assert.
1. Collateral Estoppel
DCI argues this appeal is "subject to the preclusive effect" of our order dismissing the developers' appeal (D066385). The developers successfully moved for summary judgment on the same standing grounds, and that ruling became final once plaintiffs dismissed their pending appeal. (Sandoval v. Superior Court (1983) 140 Cal.App.3d 932, 936-937 ["once the appeal is settled favorably to the plaintiff and thereafter dismissed, . . . the trial court judgment reemerges with sufficient finality to permit the application of collateral estoppel"]; White Motor Corp. v. Teresinski (1989) 214 Cal.App.3d 754, 762 [defendant's summary judgment became final upon plaintiffs' abandonment of the appeal therefrom for collateral estoppel purposes].)
DCI did not argue preclusion in its motion for summary judgment. It argued only that plaintiffs had failed "to address or explain why this Court's order granting an analytically identical motion by [the developers] does not provide an analytically identical reason to grant the instant motion." The trial court noted it had reached a similar result as to the developers but explained that it was granting summary judgment "based on its independent review of the arguments and evidence before the Court on this motion and . . . not based on its earlier ruling."
An appellate court ordinarily "will not consider an argument 'raised in an appeal from the grant of summary judgment . . . if it was not raised below and requires consideration of new factual questions.' " (Noe v. Superior Court (2015) 237 Cal.App.4th 316, 335.) But we may "consider a newly raised issue 'when [it] involves purely a legal question which rests on an uncontroverted record which could not have been altered by the presentation of additional evidence.' [Citations.] Even under such circumstances, we will not consider the issue unless 'the opposing party has notice of and an opportunity to respond to that ground.' " (Id. at pp. 335-336, citing Code Civ. Proc. § 437c, subd. (m)(2); see Bains v. Moores (2009) 172 Cal.App.4th 445, 471 fn. 39 [notice requirement may be satisfied if issue is discussed in appellate briefs].) Thus, assuming DCI's argument presents a pure question of law, we may address it on appeal notwithstanding DCI's failure to assert it below.
DCI does not identify its theory of preclusion on appeal. Collateral estoppel "prohibits the relitigation of issues argued and decided in a previous case." (DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824, italics added; see Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 701-702 [collateral estoppel applies "to later litigation to give conclusive effect to . . . an issue determined in a former proceeding"], italics added (Griset).) There is a split of authority as to whether the doctrine applies to subsequent proceedings within the same action. (Compare Lennane v. Franchise Tax Bd. (1996) 51 Cal.App.4th 1180, 1185 [doctrine inapplicable where "the first ruling was not in a former action"] (Lennane) with Columbus Line, Inc. v. Gray Line Sight-Seeing Companies Associated, Inc. (1981) 120 Cal.App.3d 622, 630-631 [an issue decided in one defendant's summary judgment motion had preclusive effect as to same issue raised in co-defendant's cross-complaint].)
"The doctrine of law of the case applies to later proceedings in the same case." (Griset, supra, 25 Cal.4th at p. 701) But law of the case applies only if there is a previous appellate court ruling on the issue. (Lennane, supra, 51 Cal.App.4th at p. 1185; Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLC (2005) 127 Cal.App.4th 1311, 1324 fn. 5; see generally, Kowis v. Howard (1992) 3 Cal.4th 888, 892-893 ["The law of the case doctrine states that when, in deciding an appeal, an appellate court 'states in its opinion a principle or rule of law necessary to the decision, that principle or rule becomes the law of the case and must be adhered to throughout its subsequent progress, both in the lower court and upon subsequent appeal . . . ."].)
Ultimately, even if DCI has a colorable collateral estoppel argument that we could review for the first time on appeal, it has not provided an adequate record for review. As the party asserting collateral estoppel, DCI bears the burden to establish its threshold elements. (Pacific Lumber Co. v. State Water Resources Control Bd. (2006) 37 Cal.4th 921, 943.) The record on appeal contains only the tentative minute order granting the developers' summary judgment motion on standing grounds. DCI has not furnished the trial court's final order granting summary judgment to the developers or the order dismissing plaintiffs' appeal. Without an adequate appellate record, we cannot determine whether the trial court's prior ruling on the standing issue should be given preclusive effect.
Likewise, the record does not indicate whether plaintiffs and the developers agreed as part of their settlement to stipulate to a reversal of the judgment. (Neary v. Regents of University of California (1992) 3 Cal.4th 273, 284; Code Civ. Proc., § 128, subd. (a)(8).)
2. Claim Splitting
The trial court granted DCI's summary judgment motion on the alternative ground that plaintiffs were engaging in improper claim-splitting. It rejected plaintiffs' contention that their "fraud damages" could be severed from the construction defect claims in the HOA case, noting that they had "not offered evidence to demonstrate that any [p]laintiff sustained damage to his or her individual unit that could not be recovered in the [HOA action]."
DCI argues that plaintiffs' failure to address the claim-splitting aspect of the trial court's ruling renders the appeal "dead on arrival." (See Christoff v. Union Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125 [where court grants summary judgment on various grounds, failure to discuss one of them forfeits that issue on appeal].) Although plaintiffs do not explicitly address the claim-splitting issue, it is inextricably tied to their overarching claim that they seek to recover damages to their individual units not covered by the HOA action.
Turning to the merits of DCI's defense, despite substantial overlap between the two cases, claim-splitting principles do not foreclose plaintiffs' suit.
"The law abhors a multiplicity of actions." (Flickinger v. Swedlow Engineering Co. (1955) 45 Cal.2d 388, 393.) A cause of action consists of "a 'primary right' of the plaintiff, a corresponding 'primary duty' of the defendant, and a wrongful act by the defendant constituting a breach of that duty." (Crowley v. Katleman (1994) 8 Cal.4th 666, 681.) "The most salient characteristic of a primary right is that it is indivisible: the violation of a single primary right gives rise to but a single cause of action." (Ibid.)
Accordingly, a plaintiff may not engage in claim splitting—i.e., raise an issue in a new action that falls within the primary right advanced in a prior action. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 900, 903.) "If by an attempt at artful pleading, a party could assert his cause in one form in one action and, after an adverse decision on the merits, reassert it in another form in a subsequent action, there would be no end to litigation." (Flickinger v. Swedlow Engineering Co., supra, 45 Cal.2d at p. 393.)
"The cause of action is based on the injury to the plaintiff, and not the particular legal theory of the defendant's wrongful act." (4 Witkin California Procedure (5th ed. 2008) Pleading, § 36, p. 101.) "In determining whether more than one primary right is invaded, we look to the harm suffered rather than the legal theory asserted by the plaintiff. . . . 'Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief.' " (Stoner v. Williams (1996) 46 Cal.App.4th 986, 1003, italics omitted; see Jenkins v. Pope (1990) 217 Cal.App.3d 1292, 1299 fn. 3 [same].)
"Another basic distinction is between the cause of action . . . and the remedy or relief sought. The violation of one primary right may sometimes give rise to two or more remedial rights, entitling the plaintiff to two or more remedies or forms of relief. The fact that several forms of relief are sought, whether legal or equitable or both, does not mean that there is more than one cause of action." (4 Witkin California Procedure (5th ed. 2008) Pleading, § 40, p. 105; see Purcell v. Colonial Ins. Co. (1971) 20 Cal.App.3d 807, 813 [" ' "Compensatory damages do not constitute a plaintiff's cause of action. His cause of action arises from the wrong inflicted on him, and for the infliction of that wrong he is allowed an award of such damages." ' "] (Purcell); Lincoln Property Co. N.C., Inc. v. Travelers Indemnity, Co. (2006) 137 Cal.App.4th 905, 915 ["[T]he fact that the cause of action gives rise potentially to both tort and contract forms of relief does not alter the fact that both claims arise out of the breach of the same primary right."].)
Simply put, a plaintiff's primary right is his or her "right to be free from the particular injury suffered." (Crowley, supra, 8 Cal.4th at p. 681.) Here, plaintiffs' primary right is their right to take ownership of their units free of construction defects. In their operative complaint, they sue DCI for negligence, fraud, and breach of an engineering contract (to which they claim to be third-party beneficiaries). There is significant overlap between their action and the HOA action. As plaintiffs' counsel previously put it, "[t]he distinction is not about different defects" but rather "about different damages and what the defects caused."
The HOA sued DCI for negligence, construction defects under the Right to Repair Act (Civ. Code, §§ 895 et seq.), fraud, and conspiracy to commit fraud. Both lawsuits allege that DCI's negligence caused damage to the "unit interiors" and plaintiffs' personal property. Both rest their fraud claims on DCI's letters to the City certifying that construction conformed to the approved plans.
The main difference between the two actions lies in the measure of damages. The HOA sought to recover the cost of repair. In their negligence claim against DCI, plaintiffs seek diminution in value to their units. "As a general rule, a plaintiff in a suit for negligent damage to real property is allowed to recover either the cost of repair or the diminution in value, but not both." (Safeco Ins. Co. v. J&D Painting (1993) 17 Cal.App.4th 1199, 1202.) Where a homeowner recovers the cost of repair and the property is repaired, "he possesses exactly the same property he had before" and cannot also recover for the decline in market value. (Id. at pp. 1202-1203.) In some respects, plaintiffs could be viewed as seeking to recover the cost of repair in one action (the HOA action) and diminution in value in another (theirs) to vindicate the same primary right. Plaintiffs could have intervened in the HOA action (Code Civ. Proc. § 387) if they believed the HOA lacked standing to vindicate their rights to seek repair costs but apparently chose not to.
There is less overlap in damages with the fraud and contract-based claims. Plaintiffs seek fraud damages of what they paid less what their units were actually worth—or, in the alternative, rescission. (Civ. Code, § 3343, subd. (a) [damages from fraud in the sale of real property].) They do not specify a measure of damages for their breach of contract claim, but Civil Code section 3300 sets contract damages at "the amount which will compensate the party aggrieved for all the detriment proximately caused thereby . . . ."
Nevertheless, despite the striking parallels between the two actions, plaintiffs did not engage in impermissible claim-splitting. The rule against splitting a cause of action applies only to actual parties, not their privies. (Vanguard Recording Society, Inc. v. Fantasy Records, Inc. (1972) 24 Cal.App.3d 410, 416-417 [prior suit by singer Joan Baez for injunctive relief did not bar later suit by her record company for damages].) "A person who was merely in privity with the former plaintiff may bring a subsequent action against the former defendant. The new plaintiff's cause of action, based on an invasion of his or her own primary right, is distinct. The new plaintiff will be bound, however, under the doctrine of collateral estoppel, by the determination of any new issues in the first action." (4 Witkin California Procedure (5th ed. 2008) Pleading, § 46, p. 110.) Because plaintiffs were not parties to the HOA action, that action does not bar their suit even if they would be bound to any factual determinations previously made.
It is not clear from the record whether the trial court adjudicated any of the negligence, construction defect, and fraud claims in the HOA action before the case settled in 2014. In moving for summary judgment, DCI did not argue that the HOA action had collateral estoppel effect as to any of plaintiffs' claims.
DCI cites Purcell, supra, 20 Cal.App.3d 807, but that case merely stands for the proposition that a plaintiff who assigns his or her rights to a third party thereafter lacks standing to sue on that claim. (Id. at p. 814.) To the extent plaintiffs made a complete assignment of their rights to claims relating to common area defects, Purcell advises that they lack standing to bring a claim for "purely personal damages." (Ibid.) As in Purcell, we must consider the scope of the assignment provision in the CC&R's to determine whether plaintiffs assigned the claims they now assert to the HOA.
3. Standing
The CC&R's contain the following assignment provision:
"4.3.13 Claims and Actions. Subject to the provisions of this Declaration, the Association shall have the power, but not the duty, to initiate, defend, settle, release, or intervene in mediation, arbitration, judicial or administrative proceedings on behalf of the Association in matters pertaining to (a) the application or enforcement of this Declaration and (b) any and all claims, causes of action, damages and suits for defects relating in any way to the design or construction of the Association Property or Common Area or any portion thereof, on behalf of the Owners. . . . The Association and not the individual Members shall have the power to pursue any claims or other actions using the non-adversarial procedures for construction defects in the Association Property or the Common Area pursuant to Civil Code Section 895 et seq., and any successor
statutes or laws. The Association shall comply with any non-adversarial procedures in bringing any such claims or actions. Each Owner hereby agrees to designate such authority to the Association and assigns to the Association all power and authority as is necessary for any settlement or release of such claims."As we explain, the trial court properly interpreted this provision as giving the HOA the exclusive right to sue for damages relating to common area construction defects.
We apply familiar rules of contract interpretation to construe the CC&R's. (14859 Moorpark Homeowner's Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1410.) Our overarching aim is to "give effect to the mutual intention of the parties as it existed at the time of contracting." (Civ. Code, § 1636.) If possible, we ascertain such intent "from the writing alone." (§ 1639.) "The words of a contract are to be understood in their ordinary and popular sense . . . unless used by the parties in a technical sense, or unless a special meaning is given to them by usage." (§ 1644.) "The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping interpret the other." (§ 1641.)
Further statutory references are to the Civil Code unless otherwise indicated.
The first sentence of the assignment provision lays out five different actions the HOA may take. Four are relevant here—the HOA may (1) initiate, (2) defend, (3) settle, and (4) release matters pertaining to "any and all claims, causes of action, damages and suits for defects relating in any way to the design or construction of the . . . Common Area or any portion thereof, on behalf of the Owners." We acknowledge the sentence could be drafted with greater precision. Although an entity might initiate, defend, or settle a "matter" pertaining to construction defect claims, it would more typically release the underlying claims rather than a "matter" pertaining to such claims. Nevertheless, read in context, we believe the meaning is clear.
There is a fifth action the HOA can take that is not relevant here. The HOA may "intervene in mediation, arbitration, judicial or administrative proceedings on behalf of the Association" in appropriate matters. Plaintiffs point to the "on behalf of the Association" phrase to claim that the first sentence relates solely to the HOA's power to act on behalf of itself. As they read the sentence, the HOA can do five things with respect to legal "proceedings," all "on behalf of the Association." There are at least two problems with this reading of the CC&R's. First, while one may "initiate," "defend," "intervene in" or perhaps even "settle" a legal proceeding, it makes no sense to "release" one. More importantly, plaintiffs' reading would be internally inconsistent, authorizing the HOA to "initiate [or] defend . . . proceedings on behalf of the Association in matters pertaining to . . . claims . . . relating in any way to the design or construction of the . . . Common Area . . . on behalf of the Owners . . . ." As we read the sentence, the HOA has the power to do five different things in certain legal "matters." One of them is to intervene on its own behalf, and this is the only action to which the phrase "on behalf of the Association" attaches.
If a claim is covered by the Right to Repair Act (§ 895 et seq.), the second and third sentences come into play. The Legislature passed comprehensive construction defect reform in 2002, commonly known as the Right to Repair Act. "The Act sets forth detailed statewide standards that the components of a dwelling must satisfy. It also establishes a prelitigation 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." (McMillin Albany LLC et al. v. Superior Court (Jan. 18, 2018, No. S229762) ___ Cal.5th ___ .) If the HOA's claim (relating in any way to common area construction) is covered by the prelitigation procedures set forth in the Right to Repair Act, only the HOA may pursue those procedures. Plaintiffs argue the reference to "non-adversarial procedures" in these two lines indicates that any assignment was made solely with respect to nonadversarial proceedings. This construction ignores the first and last sentences of the assignment provision. The first sentence recognizes the HOA's right to initiate litigation on behalf of owners for claims relating in any way to common area construction. And the last reflects a complete assignment of rights as to such claims.
All together, we read the assignment provision to say in relevant part: The HOA has the power, but not the duty, to initiate, defend, settle, or release matters pertaining to any and all claims relating in any way to the construction of the common area on behalf of the owners. Only the HOA may pursue nonadversarial prelitigation procedures under the Right to Repair Act (§ 895 et seq.) for such claims. The HOA will comply with the Act as to such claims. Each owner designates such authority to the HOA and assigns to the HOA all power and authority as is necessary for any settlement or release of such claims.
Plaintiffs read the last sentence to mean that any assignment was made solely as to the "settlement or release of such claims" and not to the initiation of legal proceedings. This ignores the first part of the sentence, that "[e]ach Owner hereby agrees to designate such authority to the Association." Read as a whole, the sentence reflects a complete assignment to the HOA of owners' right to initiate damages claims for common area construction defects. Indeed, as a practical matter, we fail to see how plaintiffs could assign the right to settle or release claims without assigning the attendant right to initiate claims.
To the extent the plain language is ambiguous, other provisions in the CC&R's shed light on its scope. (§ 1641.) The assignment provision allows the HOA to sue "on behalf of the Owners" for damages "relating in any way to" common area defects. If the HOA recovers proceeds from such litigation, a separate distribution clause provides:
"If the Association receives, on its own behalf or for the benefit of the Owners, any proceeds as a result of any construction defect or other claims or litigation brought by the Association, then the Association shall apply such proceeds first for the purpose of repairing such defects or replacing reserve funds previously utilized by the Association to cause such repairs and then to the costs of such litigation." (Italics added.)Thus, the HOA can bring construction defect actions either on its own behalf or for the benefit of the Owners. Construing the distribution clause with the assignment provision, the latter reflects a clear intent for homeowners to relinquish to the HOA their damage claims relating in any way to common area construction defects. We note that there are no provisions in the CC&R's that reference an owner's independent right to bring damage claims that relate to common area construction defects.
Plaintiffs' claims against DCI all relate to the design or construction of the common area. Their causes of action for fraud, negligence, and breach of contract rest on alleged framing defects—specifically, that beams used to frame the buildings were exposed to excessive moisture. The CC&R's define structural components as "Common Area." As the structural engineer of record, DCI was involved solely in "structural design and limited structural construction observation"—i.e., common area work.
By contrast, structural components like "bearing walls, columns, floors, roofs and foundations" are excluded from the CC&R's definition of "Unit." Whereas the CC&R's require the HOA to "maintain and/or repair the Common Area," homeowners are responsible only for the care and maintenance of their Units.
The HOA also sued DCI and other entities for common area construction defects. The two suits are "not about different defects" but rather allege different damages caused by the same defects. Pursuant to the assignment provision in the CC&R's, plaintiffs lack standing to sue DCI for damages "relating in any way to" common area construction defects. By their own admission, all of their claims, including their fraud claims, fall in that category. (Purcell, supra, 20 Cal.App.3d at p. 814 [by executing an assignment, plaintiff was no longer the real party in interest and could not sue insurer for "purely personal damages"].)
Plaintiffs respond that the HOA could not have brought fraud claims on behalf of individual owners. They argue "[t]he HOA does not know nor can the HOA prove the individual reliance theories." To this, we note at the outset that the prospect of individualized harm did not stop the HOA from suing DCI on behalf of "Association members" for negligently harming "unit interiors, vehicles, and personal property." Moreover, as we explain, plaintiffs' attempt to isolate their fraud claims ignores the breadth of the assignment provision.
As plaintiffs' own authority shows, fraud claims may be assigned. In Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972 (Heritage), an assignee on a promissory note claimed to possess the right to sue the borrower for material misstatements in her original loan application. (Id. at p. 980.) The borrower successfully demurred on the ground the lender had not assigned those claims merely by assigning the note. (Ibid.) The Court of Appeal affirmed, concluding that "[f]raud rights are not, as a matter of law, incidental to the transfer of the promissory note." (Id. at p. 990.) It did not suggest that fraud claims could never be validly assigned, and indeed they can. (Miske v. Bisno (2012) 204 Cal.App.4th 1249, 1260 [considering scope of limited partner's assignment of fraud claims].) As a general matter, HOAs have broad standing under section 5980 "to sue as real parties in interest in all types of actions for damage to common areas." (Windham, supra, 109 Cal.App.4th at p. 1175, citing predecessor to § 5980.) There is no reason the right to sue for fraud could not be assigned.
Plaintiffs' theory of fraud as to DCI is as follows. DCI allegedly failed to disclose known construction defects, in particular, that a significant number of beams used to frame the Seahaus buildings had been exposed to excessive moisture. DCI misrepresented in two letters to the City of San Diego that the buildings "were in general conformance with the structural design intent and the structural approved permit drawings." Plaintiffs reasonably relied on DCI's representations and omissions in purchasing their units.
Although plaintiffs suggest they could not have assigned these particularized claims to the HOA, the assignment provision proves otherwise. The HOA has the power, but not the duty to initiate, settle, and release matters pertaining to any and all claims relating in any way to the design or construction of the common area on behalf of owners. Claims for misrepresentations and omissions regarding common area construction fit this description. Stating the HOA has "the power but not the duty" leaves it to the HOA's discretion to decide in the interest of its members whether to bring and how to pursue a claim relating in any way to common area defects. The last sentence establishes that the HOA alone has this authority: each owner designates such authority to the HOA and assigns to the HOA all power and authority necessary for it to settle and release such claims. Homeowners could not possibly retain the individualized fraud claims asserted here if they assigned to the HOA all power and authority necessary to settle and release those claims.
To view it from another angle, consider the middle sentences of the assignment provision. Under McMillin, plaintiffs' negligence claim against DCI is subject to the Right to Repair Act's prelitigation procedures, whereas their fraud and contract claims are not. (McMillin Albany LLC et al. v. Superior Court, supra, ___ Cal.5th ___ ; § 943, subd. (a).) Pursuant to the assignment provision, only the HOA may pursue these prelitigation procedures. Thus, at a minimum, plaintiffs have assigned to the HOA their right to sue DCI for negligence (and any other common law or statutory claim under the Right to Repair Act's scope). They must have done so through the first sentence of the assignment provision. But there is no reasonable way to read that sentence as assigning only certain claims relating to common area construction without also assigning plaintiffs' fraud claims.
In short, the clear language of the assignment provision reveals that plaintiffs assigned to the HOA each of the claims for negligence, fraud, and breach of contract they assert against DCI.
Arguing against this result, plaintiffs contend the assignment provision is "inconsequential" and merely reflects the HOA's existing legal rights. Plaintiffs are correct that an association has standing to participate in legal proceedings "in its own name as the real party in interest and without joining with it the members, in matters pertaining to . . . [d]amage to the common area." (§ 5980 subd. (b); see Windham, supra, 109 Cal.App.4th at p. 1175.) But construing the assignment provision as merely reaffirming these existing rights would render it superfluous and redundant, a result we strive to avoid. (Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409, 420 [" 'An interpretation which gives effect to all provisions of the contract is preferred to one which renders part of the writing superfluous, useless or inexplicable.' "].) It would be unusual and extraordinary to conclude nothing was assigned given language that "[e]ach Owner hereby agrees to designate such authority to the Association."
In 2012 the Legislature reorganized and recodified the Davis-Stirling Common Interest Development Act, the 1985 law governing condominiums. (See generally, 12 Witkin Summary of Cal. Law (11th ed. 2017) Real Property, § 84, pp. 133-134.) For example, current section 5980 is substantively the same as former section 1368.3 (and its predecessor, Code Civ. Proc., § 383). Although plaintiffs filed their lawsuit before these latest statutory changes went into effect, we refer to relevant statutes by their current section numbers. All of the provisions we cite remain substantively unchanged following reorganization.
Alternatively, plaintiffs claim the assignment provision was not drafted with "sufficient particularity" and that uncertainty in adhesion contracts should be construed against the drafter. They rely solely on Heritage, supra, 215 Cal.App.4th 972, which the trial court properly distinguished. This is not a case where any assignment was implicit. The assignee in Heritage claimed a right to assert the lender's tort claims based on: (1) implied conduct of the parties, including the custom and practice of lenders in assigning notes; (2) language in the borrower's loan application stating that the lender's assigns could rely on the information provided; and (3) the lender's written indorsement of the note. (Id. at pp. 989-990.) Here, there is an explicit assignment provision that assigns to the HOA the right to bring damage claims "relating in any way to" common area construction defects. DCI seeks to enforce the plain language of the assignment provision in the CC&R's, not argue that by virtue of some other assignment certain rights were implicitly conveyed.
Plaintiffs next parse the text to overcome an otherwise reasonable construction. Although there is no comma in the first sentence of the assignment provision, they insert an unnatural break between the words "defects" and "relating." They then claim that the first part of this strange new sentence reflects the HOA's existing legal right to sue for common area defects while the phrase "on behalf of the Owners" in the second part has no apparent meaning. We reject this construction as contrary to the plain and ordinary meaning and decline to construe whole phrases of the assignment provision as meaningless. (§§ 1641, 1644; Carson v. Mercury Ins. Co., supra, 210 Cal.App.4th at p. 420.)
For the first time in their reply brief, plaintiffs urge us to consider parol evidence in the form of homeowner declarations to discern what the parties intended the assignment provision to mean. We decline to do so. "[P]arol evidence is admissible only to prove a meaning to which the language is 'reasonably susceptible' [citation], not to flatly contradict the express terms of the agreement." (Winet v. Price (1992) 4 Cal.App.4th 1159, 1167 (Winet), citing Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 38.) Moreover, evidence regarding plaintiffs' subjective understanding of the CC&R's is irrelevant absent evidence the understanding was mutual at the time of drafting. (Winet, at p. 1166, fn. 3 ["evidence of the undisclosed subjective intent of the parties is irrelevant to determining the meaning of contractual language"]; PV Little Italy, LLC v. MetroWork Condominium Assn. (2012) 210 Cal.App.4th 132, 156-157 ["Such subjective statements of 'understanding' [in declarations concerning CC&R language] are irrelevant, however, particularly where there is no evidence that KeyBank had the same understanding."].)
Finally, plaintiffs raise various policy arguments, suggesting that finding an assignment would: (1) render the CC&R's "against the policy of the law" as a contract that has "for [its] object, directly or indirectly, to exempt anyone from responsibility for his own fraud" (§ 1668); (2) leave former HOA members without a recovery; and (3) unfairly deny a remedy "because the real property bought was a condo, and not a single-family home." We need not dwell on these arguments. As we explain, plaintiffs failed to plead facts to support a finding that the assignment provision in the recorded CC&R's is unenforceable.
Where, as here, a contested provision is located within recorded CC&R's, it "is presumed to be reasonable." (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 386 (Nahrstedt).) "The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of separate interests in the development." (§ 5975, subd. (a), italics added.) Although equitable servitudes typically pertain to use restrictions, such as the pet ban in Nahrstedt, developers have "latitude to place in declarations any term they deem appropriate, including provisions that afford them special rights and privileges, so long as such terms are not unreasonable." (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 242 [enforcing arbitration clause in CC&R's] (Pinnacle); see § 4250, subd. (b).)
The standard for assessing reasonableness may differ depending on the type of provision at issue. A use restriction in recorded CC&R's is unreasonable if it is "arbitrary, imposes burdens on the use of lands it affects that substantially outweigh the restriction's benefits to the development's residents, or violates a fundamental public policy." (Nahrstedt, supra, 8 Cal.4th at p. 386.) Other types of provisions in recorded CC&R's, such as arbitration clauses, are deemed unreasonable if they are unconscionable. (Pinnacle, supra, 55 Cal.4th at p. 246; id. at p. 258 (dis. opn. of Liu, J.).)
Here, plaintiffs alleged no facts in their complaint that could support a finding that the assignment provision in the recorded CC&R's is unenforceable as unreasonable. Although they raise various arguments in their briefs, the pleadings limit the scope of issues on summary judgment. (Hutton v. Fidelity National Title Co. (2013) 213 Cal.App.4th 486, 493 [collecting cases].) Plaintiffs cannot create a triable issue through their briefs or declarations. (Ibid.) Consequently, policy arguments raised solely in plaintiffs' briefs do not preclude enforcement of the assignment provision. (Nahrstedt, supra, 8 Cal.4th. at pp. 386-387 [plaintiff not entitled to declaratory relief from pet ban in CC&R's where her complaint failed to plead any basis for unreasonableness].)
Certainly, if there were no assignment provision, our analysis as to former owners might be different. (See Vaughn v. Dame Construction Co. (1990) 223 Cal.App.3d 144, 149 [rejecting argument that former owner lacked standing to sue for construction defects following sale: "If . . . the new owners bought the property with full knowledge of the defective construction and presumably paid no more than the fair market value of the property in its defective condition, there is little likelihood that the new owners would or could assert the same claim as plaintiff."].) In any event, pursuant to the assignment provision, former owners are situated no differently than current owners who learn that the HOA has opted not to bring an assigned claim. That certain owners (current or former) may be left without a remedy does not render the assignment provision invalid.
As suggested by DCI's counsel at oral argument, plaintiffs' real dispute may not lie with DCI. Plaintiffs assert that the HOA narrowly construes the definition of "Common Area" in the CC&R's to avoid making necessary repairs. They also claim the HOA's $16 million settlement will cover only some of the repair costs, necessitating special assessments to cover the rest. Perhaps some homeowners believe the HOA settled its construction defect claims for too little or that it has unreasonably denied their repair requests. If so, plaintiffs' primary quarrel may be with the HOA. But, having assigned to the HOA their damages claims for defects that relate "in any way" to construction of the common area, they cannot now attempt to assert claims against DCI for "purely personal damages" from the same underlying defects. (Purcell, supra, 20 Cal.App.3d at p. 814.)
Because we resolve the standing issue in DCI's favor, we need not reach plaintiffs' contention that to the extent they have standing, the trial court erred in sustaining evidentiary objections to various homeowner declarations.
DISPOSITION
The judgment is affirmed. DCI is entitled to its costs on appeal.
DATO, J. WE CONCUR: NARES, Acting P.J. IRION, J.