232 Cal. App. 4th 494
Cal. Ct. App.2014Background
- Marina Pacifica: 570-unit condominium built under a structure where purchasers received (1) fee title to improvements and (2) an assigned leasehold; the unit lease required monthly rent (nominal until 2006) and a continuing monthly "assignment fee" payable to the developer or its successors.
- In 1999 the HOA bought the land from the McGrath Trust; unit owners thereafter no longer paid rent to the original lessor.
- The unit lease formula reset in 2006: assignment fee = (1/12 of 10% of fair market value as of Oct. 1, 2006) minus the monthly rent under Paragraph 3(b).
- After arbitration fixed the 2006 fair market value, Lansdale assigned his 43.75% assignment-fee interest to SCFC, which billed owners in Dec. 2008 using the “10% formulation” (i.e., without deducting the rent actually eliminated by the HOA’s 1999 land purchase).
- The HOA sued seeking declaratory relief, contract remedies and restitution, arguing the assignment fee was invalid or, alternatively, should be calculated using a "4% formulation" (i.e., netting out the rent component so the effective remaining portion is 4% of land value).
- Trial court: held the assignment fee is a "transfer fee" but exempt under a substantial-compliance exception (so collectible after 2008); adopted the HOA’s 4% formulation for proper calculation; found breach of contract only as to SCFC (not Lansdale) and awarded judgment; parties cross-appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the assignment fee is a "transfer fee" under Civ. Code §1098 | Assignment fee falls within §1098 and thus is a transfer fee | Assignment fee is not a transfer fee because it is not a CC&R-imposed fee and is a mere lease assignment | Fee falls within §1098 definition, but the substantial-compliance exception applies; thus fee is collectible after Dec. 31, 2008 |
| Whether the unit lease satisfied §1098.5 notice or the §1098(i) substantial-compliance exception | HOA argued lack of the statutory recording and notice requirements made fee uncollectible after 2008 | SCFC argued recorded instruments and packet materials gave notice and satisfied substantial-compliance exception | Court: recorded memoranda/assignments incorporated the lease and gave constructive (and actual) notice; substantial-compliance exception applies; reversal of judgment portion holding fee uncollectible after 2008 |
| Proper contractual calculation: deduct rent (4% formulation) or not (10% formulation) | HOA: interpret "monthly rental payable under Paragraph 3(b)" as the contractual rent formula (i.e., continue to deduct rent even if owners no longer actually pay it) -> yields effective 4% | SCFC: no rent is actually payable after HOA purchase, so nothing to deduct -> 10% applies | Ambiguity found; extrinsic evidence and contra-drafting rule favor HOA’s interpretation; court affirmed use of 4% formulation |
| Whether defendants’ billing under the 10% formulation breached contract or implied covenant; whether litigation privilege shields them | HOA: SCFC’s billing at 10% breached the lease and the covenant; Lansdale/SCFC statements misled owners | Defendants: billing and litigation statements protected by litigation privilege; no breach because interpretation is arguable | Court: SCFC breached the contract by billing at 10% (judgment for HOA against SCFC on breach). Litigation privilege does not bar contract claim based on noncommunicative conduct (collecting overpayments). No separate recovery on implied covenant (redundant) |
Key Cases Cited
- County of San Bernardino v. Calderon, 148 Cal.App.4th 1103 (Cal. Ct. App.) (statutory construction review de novo)
- Fowler v. M&C Assn. Management Services, Inc., 220 Cal.App.4th 1152 (Cal. Ct. App.) (interpretation and legislative history of transfer-fee statutes)
- Winet v. Price, 4 Cal.App.4th 1159 (Cal. Ct. App.) (use of extrinsic evidence to expose latent contract ambiguity)
- Badie v. Bank of America, 67 Cal.App.4th 779 (Cal. Ct. App.) (adhesion-contract and contra-proferentem principles)
- Roodenburg v. Pavestone Co., L.P., 171 Cal.App.4th 185 (Cal. Ct. App.) (contractual right to interest supersedes reliance on statutory prejudgment interest)