MARINA PACIFICA HOMEOWNERS ASSOCIATION, Plaintiff and Appellant, v. SOUTHERN CALIFORNIA FINANCIAL CORPORATION, Defendant and Appellant; MARIANTHI LANSDALE et al., Defendants and Respondents.
No. B251379
Second Dist., Div. Eight
Dec. 16, 2014
232 Cal. App. 4th 494
[CERTIFIED FOR PARTIAL PUBLICATION*]
Locke Lord, Christopher J. Bakes and Daniel A. Solitro for Plaintiff and Appellant.
June Babiracki Barlow and Neil Kalin for California Association of Realtors as Amicus Curiae on behalf of Plaintiff and Appellant.
Greenberg Traurig, Scott D. Bertzyk, Adam Siegler and Matthew R. Gershman for Defendant and Appellant and for Defendants and Respondents.
FLIER, J.—This litigation between plaintiff Marina Pacifica Homeowners Association (the HOA) and defendants William Lansdale1 and Southern California Financial Corporation (SCFC) concerns the Marina Pacifica condominium project (Marina Pacifica) in Long Beach, California. SCFC appeals, and the HOA cross-appeals, from the judgment after a bench trial. The parties’ dispute centers around a monthly fee the residents of Marina Pacifica pay to the developers of the condominiums, or the developers’ successor in interest, called the “assignment fee.” We affirm in part and reverse in part.
FACTUAL AND PROCEDURAL BACKGROUND
1. Marina Pacifica‘s Development and Pertinent Transactions
Marina Pacifica is a 570-unit complex on the Long Beach waterfront. At the time of Marina Pacifica‘s construction in the early 1970‘s, the McGrath Trust owned the land on which the complex was built. Lansdale obtained an option on a ground lease from the McGrath Trust. He contributed the ground lease option to Marina Pacifica Limited Partnership (the limited partnership). The limited partners in this entity were Lansdale, Abe Reider, and William Dawson. The limited partnership exercised the ground lease option to develop and construct the Marina Pacifica complex.
The ground lease was subdivided into 570 identical leases, one for each condominium unit, entitled “Condominium Common Area and Unit Space Lease” (the unit lease). The McGrath Trust was the lessor and the limited partnership was the lessee under each unit lease. The unit leases were for a term of 68 years and would expire on September 30, 2041. When the limited partnership sold a condominium unit, it and the purchaser executed a standard document assigning the unit lease to the purchaser (the lease assignment). If unit owners sold their units, the seller and the subsequent purchaser executed a standard document assigning the seller‘s rights, interests, and obligations under the unit lease to the subsequent purchaser (resale assignment).
Thus, unit owners purchased an ownership interest in their condominium units plus an undivided leasehold interest in the land underlying the complex. The unit leases required owners to make two monthly payments: rent payable
Rent: Monthly rent was $15 from June 1973 to September 2006. Under paragraph 3.(b) of the unit lease, from October 2006 to September 2021, monthly rent would become the greater of (1) $25 or (2) 1/12th of 6 percent of the fair market value of the leasehold premises, as of October 1, 2006.
Assignment Fee: “[F]or and in consideration of” the limited partnership‘s assignment of its interest in the leasehold estate to unit owners, the unit owners and each of their successors and assigns would pay to the limited partnership “a continuing assignment fee” under paragraph 4. of the unit lease. Until September 2006, the assignment fee was $13 to $35 depending on the unit and was subject to cost of living increases every five years. From October 2006 to September 2021, the monthly assignment fee would “be equal to the amount, if any, by which one-twelfth (1/12) of ten percent (10%) of the fair market value of the leasehold premises on October 1, 2006 exceed[ed] the monthly rent payable under part (b) of Paragraph 3” of the unit lease.2
The unit lease stated the provisions of the assignment fee paragraph were “intended by the parties hereto to be separate and independent from all remaining provisions” of the unit lease, and would “constitute, and be construed as creating, a separate contractual obligation of the Assignee of [the limited partnership] and all of the successors and assigns of said assignee . . . .”
A copy of the unit lease itself was not recorded. But in May 1973, the limited partnership caused a “Memorandum of Condominium Common Area and Unit Space Leases” to be recorded with the Los Angeles County Recorder‘s Office. This memorandum was recorded against the entire Marina Pacifica property and incorporated the unit leases by reference. Additionally, each lease assignment or resale assignment was recorded against its respective condominium unit. The lease assignments and resale assignments also incorporated the unit leases by reference.
In connection with the purchase of any unit, the HOA gave each purchaser a packet of documents. Among other things, the packet contained sample
Unit owners originally paid the assignment fee to the limited partnership. When the limited partnership completed developing and selling all the units, the partners dissolved the entity. Upon dissolution, the limited partners each received a share of the assignment fee—Lansdale received 43.75 percent, Dawson received 37.75 percent, and Reider received 18.5 percent.
In December 1999, the HOA purchased the land underlying Marina Pacifica from the McGrath Trust for $17 million. Each unit owner then paid the HOA for the owner‘s pro rata share of the land. As a result of this purchase, the unit owners no longer pay any rent under the unit lease.
From 1995 to 2005, the HOA attempted to negotiate with Lansdale, Dawson, and Reider to buy their interests in the assignment fee. The HOA wanted to eliminate the obligation to pay the assignment fee before the October 2006 adjustment. The HOA successfully negotiated with Dawson and Reider. In 2000, it purchased their interests (collectively, 56.25 percent) for $5 million. It was unable to reach an agreement with Lansdale to buy his 43.75 percent interest in the assignment fee.
2. Appraisal Litigation
As discussed, the adjustments of the rent and assignment fee required the parties to determine the fair market value of the leasehold premises. The unit lease provided that the lessor—originally, the McGrath Trust—and the HOA would each select an appraiser, and their two appraisers would agree on a third appraiser to render an appraisal of the fair market value. After the HOA purchased the land from the McGrath Trust, it took the position that the interests of the lessor and lessee under the unit lease had merged, and it thus had the right to select an appraiser unilaterally for purposes of calculating the assignment fee. Lansdale disagreed and asserted he had a right to participate in the appraisal process by selecting one of the two initial appraisers. In 2005, Lansdale and the HOA filed dueling pleadings seeking declaratory relief to resolve this dispute (appraisal litigation).
The appraisal litigation went to trial. The HOA stipulated for purposes of the trial that Lansdale was the sole remaining assignee of the limited
In the court‘s statement of decision in the appraisal litigation, the court noted: “The monthly ‘Assignment Fee’ is a separate contractual obligation owed to [Lansdale] over the term of the Lease. The Assignment Fee is binding on the original purchasers and any subsequent purchasers in the Marina Pacifica condominium project.”
The court found the interests of the lessor and lessee under the unit lease had merged and “the leasehold interest ha[d] been annihilated and no longer exist[ed].” There was no longer any lessor to appoint an appraiser, and therefore the appraiser-appointment method described in the unit lease could not be followed. The court held it would be inequitable and unconscionable to permit only one party to appoint the appraiser, insofar as the original parties to the unit lease agreed the fair market value of the leasehold premises would be determined by an independent appraiser. The court determined it should appoint an independent appraiser pursuant to
On appeal, Division Two of this court affirmed the judgment in the appraisal litigation. (Lansdale v. Marina Pacifica Homeowners Assn. (Aug. 14, 2007, B192520) [nonpub. opn.].)
Lansdale and the HOA participated in arbitration to implement the terms of the court‘s judgment. The court entered an order confirming the arbitrator‘s award, holding that, “[a]s of October 1, 2006, the fair market value of the property used for purpose of calculating the Assignment Fee due under the Lease . . . is the sum of $60,615,500.”3
3. 2008 Assignment Fee Billing and Commencement of the Instant Action
Lansdale assigned his 43.75 percent interest in the assignment fee to codefendant SCFC in January 2008. After the court affirmed the arbitrator‘s award in the appraisal litigation, SCFC began billing the unit owners for its share of the assignment fee in December 2008.
10% x $60,615,500 (fair market value) — $0 (monthly rent unit owners actually paid)
12
We will refer to this method of calculating the assignment fee as the “10 percent formulation.”
The HOA sent unit owners a notice instructing them not to pay SCFC‘s bill and commenced this action three months later. The HOA‘s first amended complaint (FAC) alleges numerous causes of action for declaratory relief, breach of contract, breach of the covenant of good faith and fair dealing, reformation, and restitution. The gravamen of the FAC is that the assignment fee is invalid or unenforceable for several reasons, or assuming it is valid and enforceable, SCFC‘s billing vastly overstated the amount owing.
The HOA alleges the unit owners’ purchase of the underlying land extinguished the unit lease—that is, the purchase caused a merger of the landlord‘s and tenants’ estates. And, insofar as the unit lease stated that the assignment fee provision was a “separate contractual obligation,” the HOA alleges the pertinent provision did not contain any other contractual language and did not recite any consideration flowing to the unit owners for payment of the assignment fee. As such, the assignment fee provision fails as a contract and is not an enforceable obligation.
The HOA also alleges the assignment fee is a “transfer fee” as defined by
10% x $60,615,500 — 6% x $60,615,500 (monthly rent unit owners = 4% x $60,615,500
12 12 would have paid) 12
We will refer to this method of calculating the assignment fee as the “4 percent formulation.” The HOA alleges the 4 percent formulation is the correct interpretation of the assignment fee provision.
The HOA‘s causes of action for breach of contract and breach of the covenant of good faith and fair dealing allege defendants breached the unit lease and the covenant by billing unit owners under the 10 percent formulation, rather than under the “agreed upon” 4 percent formulation.
4. Motions for Summary Adjudication
Defendants filed three motions for summary adjudication. The court denied two and granted one in part based on the statute of limitations. The court granted summary adjudication as to any claims, on any ground, that the assignment fee was void from its inception and that restitution may be had based on these claims. The court also granted the motion as to any claims running from the merger of estates in 1999. Specifically, the court granted summary adjudication as to the ninth, 10th, 11th, 12th, and 14th causes of action, except to the extent the ninth cause of action related to SCFC‘s calculation of the assignment fee in 2008. The HOA‘s cross-appeal relates to the court‘s summary adjudication ruling.
5. Phases One and Two of Trial and Statement of Decision
The court bifurcated the trial into several phases and tried phases one and two first. These phases dealt with (1) the remaining arguments that the assignment fee was invalid and (2) the proper calculation of the assignment fee, if it was valid. The trial court issued a statement of decision on phases one and two setting forth mixed results for the parties. We summarize the pertinent portions of the statement of decision.
a. Application of the Transfer Fee Statutes (§§ 1098, 1098.5)
The court held the assignment fee was a transfer fee within the meaning of
b. Proper Calculation of the Assignment Fee for the Period of Its Validity
Because the assignment fee was collectible through December 31, 2008, the court determined the proper calculation for the fee for the 2006 escalation. The court held the 4 percent formulation urged by the HOA was correct, not the 10 percent formulation as urged by defendants. It found:
“The parties never contemplated elimination of rent at the inception of the agreement. Defendants[‘] literal application of the formula results in a windfall. It would be entirely anomalous that by purchasing the property and eliminating the lease, the unit owners would be required to pay even more for an assignment of an interest no longer in existence. The law abhors absurd results. [¶] . . . [¶]
“It would be absurd for a party to pay an increased amount after the lease was extinguished. There is nothing in the voluminous record which would suggest such was the mutual intent of the parties. [T]he purchase of the land by the unit owners was never contemplated at the time the documents were drafted. The clear intent of the parties was to adjust the amount of the assignment fee as the value of the leasehold increased or decreased over time.”
The court held the “only reasonable and fair result” was to enforce the assignment fee provision as if the monthly rent were still due because “[t]hat was the mutual understanding of the parties when the contract was made—that some monthly rent payable would be due until the year 2041.” Thus, the 4 percent formulation, which accounted for a monthly rent payment, was the correct formulation.
c. Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing
The court found there was evidence Lansdale had represented during the appraisal litigation that he used the 4 percent formulation to calculate the assignment fee. Yet, when SCFC began billing the unit owners in 2008, it used the 10 percent formulation, and defendants contended in this case that
d. Lack of Consideration
The court held the escalation provision for the assignment fee (i.e., the fee increase in 2006 and 2021) did not fail for lack of consideration. The original unit owners and their successors “received consideration in the form of a unit within the development. They made that purchase subject not only to a purchase price, but to other conditions and covenants, including the assignment fee.” The court further held the covenant to pay the assignment fee was separate from the unit lease itself. Therefore, the extinguishment of the lease through the merger of estates did not create a failure of consideration.
6. Judgment
When the trial court issued its tentative statement of decision, it ordered the parties to meet and confer as to the amount owed to defendants based on the court‘s findings. The parties did so and submitted competing proposed judgments to the court. The court reviewed the proposed judgments and objections to the proposed judgments and found some payment issues on which the parties disagreed. It appointed a referee, the Honorable Carl J. West (ret.), to resolve the disagreements.
After receiving the report and recommendation of the referee, the court entered judgment on July 23, 2013. The judgment set forth the amount owing under the 4 percent formulation for each unit owner and stated the unit owners collectively owed $2,436,818.03, payable to SCFC, which included prejudgment interest at the rate of 7 percent per annum. SCFC filed a timely notice of appeal. (Lansdale was not a party to this notice.) The HOA filed a timely notice of cross-appeal.
DISCUSSION
1. SCFC‘s Appeal
SCFC raises two main issues on appeal. First, it contends the court‘s transfer fee rulings were in error. SCFC argues the assignment fee is not a
a. The Assignment Fee Is a Transfer Fee, but a Statutory Exception Urged by SCFC Applies
Before turning to the transfer fee statutes, we set forth some principles that guide our interpretation of them. The relevant facts here are undisputed. When this is the case, the construction of a statute and its applicability to the undisputed facts are questions of law we review de novo. (County of San Bernardino v. Calderon (2007) 148 Cal.App.4th 1103, 1106.) When we interpret a statute, our goal is to ascertain the Legislature‘s intent in enacting the statute and effectuate the purpose of the statute. (Id. at p. 1108.) We always begin with the statutory language. (Ibid.) We construe the words in context and give them their usual and ordinary meaning. (Ibid.) When the language is unambiguous, “‘we presume the Legislature meant what it said,‘” and the plain meaning of the statute governs. (Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2005) 133 Cal.App.4th 26, 29.) If the statutory language is ambiguous—that is, it permits more than one reasonable interpretation—we may consider extrinsic aids to interpretation. (Ibid.) Thus, it is appropriate to resort to legislative history, an extrinsic aid, only when the statutory language is ambiguous. (Ibid.) Ultimately, we “‘must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute . . . .‘” (Wilcox v. Birtwhistle (1999) 21 Cal.4th 973, 977-978.)
Applying these principles, we conclude the assignment fee falls within the general definition of a transfer fee, but a statutory exception applies to exclude the fee from the definition. As a consequence, the transfer fee statutes do not bar SCFC from collecting the assignment fee.
i. Definition of Transfer Fee
The first sentence of
The parties do not dispute the assignment fee is a “fee payment requirement.” (
Focusing on the language that a transfer fee must be “imposed within a covenant, restriction, or condition” (
“CC&R‘s” is a term of art referring to a specific type of document. “The ‘declaration’ or ‘declaration of covenants and restrictions’ is the term used to refer to the recorded legal document that serves as the principal document in the creation of a common interest development, such as a planned development or a condominium. . . . The declaration is commonly referred to as the ‘declaration of covenants and restrictions,’ or the abbreviated ‘CC&Rs.’ ” (Hanna & Van Atta, Cal. Common Interest Developments: Law & Practice (Thomson Reuters 2014) § 2:16, citations omitted; see Smith-Chavez et al., Cal. Civil Practice: Real Property Litigation (Thomson Reuters 2014) § 8:2 [“A condominium project is governed by, among other documents, a Declaration of Covenants, Conditions, and Restrictions (‘declaration’ or ‘CC & R‘).“].) While the shorthand term “CC&R‘s” is used often in practice, the statutes creating the CC&R‘s requirement for common interest developments (such as condominium projects) do not use this shorthand term. These statutes instead refer simply to the “declaration.” (
Assuming for the sake of argument that we were to follow SCFC‘s reasoning, and limit the language‘s meaning to CC&R‘s, the assignment fee nevertheless can be said to be “imposed within” (
Moving to the remaining pertinent clause in the definition of transfer fee, the definition “requires a fee be paid upon transfer of the real property.” (
This argument is unconvincing. It takes a too narrow view of the assignment fee without considering the reality of the whole transaction by which unit owners became “owners.” It is true that, according to the unit lease, the assignment fee became operative when the limited partnership assigned the unit lease. The lease assignments between the limited partnership and the original unit owners therefore triggered the assignment fee. The lease assignments accomplished more than a simple assignment of the leasehold estate, however. The full title of the documents was “Assignment of Condominium Common Area and Unit Space Lease and Grant Deed to Improvements on Leased Premises.” (Italics added.) The lease assignments granted the unit owners, as tenants in common, an undivided interest in all the improvements on the leased land. These improvements, consisting of the condominium buildings among other things, were real property. (
Attorney Dennis Hill represented the limited partnership when it developed Marina Pacifica. He created the legal structure for the project and drafted the relevant documents (e.g., the unit lease and lease assignment). As he described it: “I developed the concept of individual condominiums to be sold
As the trial court characterized it in the statement of decision, “[t]he original purchaser became obligated to pay the assignment fee upon the initial transfer of the unit from the developers to the purchaser.” Lansdale‘s testimony was consistent with this idea that the assignment fee was triggered when the unit owners purchased their units. When asked whether “the purpose of the assignment fee in [his] mind was to compensate [him] for the opportunity to purchase the units at Marina Pacifica,” he replied with an unqualified “[y]es.” The undisputed evidence brought the assignment fee within the definition of a transfer fee under
We do not think the language of the statute is ambiguous such that we must resort to legislative history to interpret it. Nevertheless, we note the assignment fee is so similar to an example in the legislative history that there can be little doubt the Legislature intended
In sum, we think the assignment fee falls within the general definition of a transfer fee set forth in the first sentence of
ii. Substantial Compliance Exception to Definition of Transfer Fee
“(1) The title of the document shall be ‘Payment of Transfer Fee Required’ in at least 14-point boldface type.
“(2) The document shall include all of the following information:
“(A) The names of all current owners of the real property subject to the transfer fee, and the legal description and assessor‘s parcel number for the affected real property.
“(B) The amount, if the fee is a flat amount, or the percentage of the sales price constituting the cost of the fee.
“(C) If the real property is residential property, actual dollar-cost examples of the fee for a home priced at two hundred fifty thousand dollars ($250,000), five hundred thousand dollars ($500,000), and seven hundred fifty thousand dollars ($750,000).
“(D) The date or circumstances under which the transfer fee payment requirement expires, if any.
“(E) The purpose for which the funds from the fee will be used.
“(F) The entity to which funds from the fee will be paid and specific contact information regarding where the funds are to be sent.
“(G) The signature of the authorized representative of the entity to which funds from the fee will be paid.” (
§ 1098.5, subd. (a) .)
If the receiver of the transfer fee failed to record the required document by December 31, 2008, the receiver could not collect the fee on or after January 1, 2009. (
SCFC asserts it could still collect the fee after December 31, 2008, because the substantial compliance exception applies. Pursuant to this exception, a transfer fee does not include “[a]ny fee reflected in a document recorded against the property on or before December 31, 2007, that is separate from any covenants, conditions, and restrictions, and that substantially complies with subdivision (a) of
“(1) Payment of a transfer fee is required.
“(2) The amount or method of calculation of the fee.
“(3) The date or circumstances under which the transfer fee payment requirement expires, if any.
“(4) The entity to which the fee will be paid.
“(5) The general purposes for which the fee will be used.” (
§ 1098, subd. (i) .)
In this case, the unit lease contains all of the above information in paragraph 4. of the document. That paragraph sets forth the obligation to pay the assignment fee, the method for calculating the fee (1/12th of 10 percent of the fair market value of the land, minus the monthly rent payable), the fee‘s expiration date (the expiration of the leasehold term, or Sept. 30, 2041), the entity to which the fee will be paid (the limited partnership, “or its order“), and the general purpose of the fee (“for and in consideration of” the limited partnership‘s assignment of its interest in the leasehold estate).
The unit lease itself was not recorded against the property, but numerous documents recorded against the property incorporated the unit lease by reference, including the “Memorandum of Condominium Common Area and
Moreover, these recorded documents provided notice of the necessary information in that they provided constructive notice of the contents of the unit lease. Under the
Actual notice consists of “express information of a fact,” while constructive notice “is imputed by law.” (
The circumstances here comply with the letter of the law, but they likewise conform to the spirit of the law. The Legislature enacted
The substantial compliance exception takes the assignment fee outside the definition of a transfer fee. Hence, there is no bar under
b. The Trial Court Did Not Err in Determining the 4 Percent Formulation Applied*
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2. The HOA‘s Cross-appeal*
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DISPOSITION
The judgment is affirmed in part and reversed in part. We reverse the judgment to the extent it holds the assignment fee is an uncollectible transfer fee after December 31, 2008, under
*See footnote, ante, page 494.
Bigelow, P. J., and Grimes, J., concurred.
The petition of appellant Marina Pacifica Homeowners Association for review by the Supreme Court was denied March 11, 2015, S224035.