In a case of some import for developer appointed members of board of directors for planned residential communities, the California Court of Appeal, Second District, ruled in Talega Maintenance Corporation v. Standard Pacific Corporation (2014) 225 Cal.App.4th 722 ("Talega") that the Anti-SLAPP Statute found in Code of Civil Procedure § 425.16, et seq.1 does not apply to alleged fraudulent statements by directors of a homeowners association at a board meeting.
In Talega, developer entities built more than 3,500 homes in a planned residential community in San Clemente, California. The developers also constructed hiking and riding trails. The homeowners association held title to a portion of the property in which the trails were located. In 2005, the trails were severely damaged by heavy rains. At that time, the developers had appointed a majority of the directors on the board of the homeowners association. Those directors advised the homeowners association that the homeowners association was responsible to pay for the costs of repairing the trails, which was very significant. The homeowners association then spent over $500,000 in effecting repairs.
In 2010, the trails were again damaged by rain. This time, independent board members (not affiliated with the developer) hired consultants who advised that the developers had retained the responsibility for repairing the trails, but that the trails were never actually completed and that construction defects were likely the cause of the failure of the trails.
1 The "Anti-Slapp" statute bars causes of action arising from an individual's exercise of that "person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue."
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The homeowners association then sued the developers and the board members. The homeowners association alleged that the developer appointed board members were liable for fraud, constructive fraud, negligence and breach of fiduciary duty for misrepresenting that the homeowners association was responsible to repair the trails, when the homeowners association contended otherwise. The defendants then moved to dismiss under the Anti-SLAPP Statute found in Code of Civil Procedure § 425.16. The Trial Court denied the motion.
On appeal, the Court of Appeal affirmed the ruling of the Trial Court.
In its ruling, the Court of Appeal first held that the Anti-SLAPP statute did not apply to the causes of action of breach of fiduciary duty, constructive fraud and negligence. In that regard, the Court noted that the homeowners association's claims were based on the developer board members' alleged failure to disclose the developers' responsibility for maintaining the trails, and any expenditure of funds to repair the trails. Based upon that, the Court held that the Anti-SLAPP Statute did not apply because the withholding of information did not involve "written or oral statements." In doing so, the Court acknowledged that the act of voting by the board members can constitute protected activity. However, the Court noted that the homeowners association's claims were based on the act of spending money in violation of the board members' fiduciary duties and that the vote in favor of spending the money was incidental to the alleged wrong.
While acknowledging it to be a closer question, the Court of Appeal further ruled that the Anti-SLAPP Statute did not apply to the fraud cause of action. In that regard, the Court of Appeal ruled that a homeowners association board meeting is not an "official proceeding" within the meaning of Code of Civil Procedure, § 425.16(e)(1) because no governmental body considered the issue at stake (the condition of the trails). In addition, the Court of Appeal held that the issue of who was to pay for repairing the trails was not an issue of public interest, within the meaning of Code of Civil Procedure § 425.16(e)(3).
The Talega decision appears to set to rest the question as to whether representations by a board member for a homeowners association are protected activity insofar as the Anti-SLAPP Statute. Key in the Court's decision making is the finding that a vote in favor of spending money, which could constitute protected activity under the Anti-SLAPP statute, is only incidental to the alleged wrong where the claim arises from the payment of homeowners association funds to repair common areas and where there is an issue or question as to responsibility for necessary repair work.
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About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.
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