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California Court of Appeal Finds Homeowner Association has Standing to Bring Inverse Condemnation Suit Related to Los Angeles Transit Route

In Sierra Palms Homeowners Association a homeowner’s association brought suit against a municipal entity for inverse condemnation. The municipal entity demurred on the grounds the homeowner’s association lacked standing, which demurrer the superior court sustained without leave to amend. On appeal, Second District Court of Appeal held a homeowner’s association had standing to bring an inverse condemnation claim on behalf of all the owners pursuant to Civil Code § 5980, and reversed judgment. [Sierra Palms Homeowners Association v. Metro Gold Line Foothill Extension Construction Authority, ___Cal.App.5th___, Case No. B275241 (2nd Dist. Jan. 29, 2018).]

 

Factual and Procedural Background

Sierra Palms Homeowners Association (Sierra Palms) was a homeowner association created for the purpose of managing a common interest development consisting of 113 condominium units and common areas of property located in Azusa. Metro Gold Line Foothill Extension Construction Authority was a municipal entity that planned, constructed and/or maintained the Los Angeles Gold Line transit route, part of which ran adjacent to the Azusa property Sierra Palms managed.

On May 5, 2015, Sierra Palms filed its original complaint against Metro, among others, alleging inverse condemnation. Specifically, that Metro constructed and/or maintained the Gold Line railway in a manner that interfered with the condominium owners’ quiet enjoyment of their property and caused property damage, including damage to the condominium complex’s block boundary wall, in a manner that, among other things, resulted in a government taking of property without just compensation.

Metro demurred to Sierra Palms’ inverse condemnation claim on the ground that Sierra Palms did not have an ownership interest in the property and therefore lacked standing to proceed. Rather than demur, Sierra Palms entered into a stipulation with Metro that it would file an amended complaint by August 22, 2015, and limit its assertions to a single cause of action for inverse condemnation based on property damage to a block boundary wall. The court entered the stipulation terms as a court order on July 28, 2015.

On September 10, 2015, almost three weeks past the deadline set forth in the stipulation, Sierra Palms filed an amended complaint including claims for property damage broader than the block boundary wall. Metro again demurred on the grounds that Sierra Palms lacked standing to proceed on the inverse condemnation claims because it had no ownership interest in the property.

The trial court sustained Metro’s demurrer without leave to amend. It found that Sierra Palms had not alleged an ownership interest in the property that was the subject of the inverse condemnation claims and, having filed no opposition, had not demonstrated how the complaint could be amended to show the requisite ownership interest necessary to support its standing to proceed on that claim.

Sierra Palms then filed a noticed motion for leave to file a third amended complaint, which was taken off calendar as moot. The court entered judgment for Metro. Sierra Palms timely appealed the judgment.

 

The Court of Appeal’s Decision

Where the only aspect of a court’s ruling challenged on appeal was its denial of leave to amend, the appellate court’s review was limited to determining whether the trial court erred in denying Sierra Palms an opportunity to cure the deficiency.

The court explained that when there is incidental damage to private property caused by governmental action, but the governmental entity has not reimbursed the owner, a suit in “inverse condemnation” may be brought to recover monetary damages for any “special injury,” i.e., one not shared in common by the general public. Ordinarily, the real property holds the ownership interest in the property damaged or taken in an inverse condemnation claim. However, multi-dwelling condominium projects present special concerns because the common areas of the complex are owned in fractional shares by the unit owners, making ordinary standing requirements an obstacle to recovering damage to common areas.

Civil Code § 5980 specially affords homeowners associations standing to sue for property damage to common areas:

. . .Frequently, the common areas of the complex are owned, as they are alleged to be in this case, in fractional shares by the unit owners, making ordinary standing requirements an obstacle to recovering damage to common areas. (See, Windham at Carmel Mountain Ranch Assn. v. Superior Court (2003) 109 Cal.App.4th 1162, 1173-1174 (Windham).) For this reason, Civil Code section 5980 (section 5980) specially affords homeowners associations standing to sue for property damage to common areas or to a qualifying “separate interest” the association is obliged to maintain or repair.

The public policy rationale for such an authorization are many: to reduce difficulty and cost that would otherwise exist if each individual owner had to seek redress against the corporate defendant; to curtail the waste of judicial resources if each individual owner was required to join in an action for damage to common areas; to allow homeowner’s associations to recover for damages since they are already tasked with managing, maintaining and repairing the common areas.

The court rejected Metro’s arguments that § 5980’s authorization to homeowner associations was limited to property damage claims against private entities (as opposed to a government entity).

It also rejected Metro’s argument that the California Constitution only permits just compensation to the owner and therefore § 5980 impermissibly enlarged the scope of the constitutional claim. It explained that § 5980 did not confer an additional substantive right on a homeowner association to recover in inverse condemnation, but only permitted the homeowner association in limited circumstances to bring action on behalf of owners in a representative capacity:

. . .At oral argument Metro narrowed its challenge to Sierra Palms’s standing under section 5980, contending, because an inverse condemnation claim is rooted in article I, section 19 of the California Constitution, which refers to payment of just compensation to the “owner” of private property taken for a public use, the Legislature is without jurisdiction to expand the standing requirements for such a claim to include a homeowners association. Although we have not found a California case addressing, much less applying, section 5980 (or its predecessor statutes) in an inverse condemnation context, Metro’s suggestion that application of section 5980 would impermissibly enlarge the scope of the constitutional claim is incorrect. Section 5980 does not confer on a homeowners association an additional substantive right to recover in inverse condemnation along with the property owners. It merely makes it easier (and, in many situations, possible) for owners of fractional property interests in common areas to obtain redress by permitting their homeowners association in limited circumstances to bring the action on their behalf in a representative capacity.

Thus, the court ruled that Sierra Palms had demonstrated that it could amend its complaint to show standing under § 5980 to state a claim against Metro for inverse condemnation. Accordingly, the appellate court reversed judgment and remanded for further proceedings in accordance with its opinion.

 

Conclusion and Implications

The court made clear that homeowner associations are permitted to bring inverse condemnation actions against either private parties or government entities on behalf of property owners pursuant to Civil Code § 5980. The court’s decision is available online at: http://www.courts.ca.gov/opinions/documents/B275241.PDF

(Giselle Roohparvar)