SB Liberty v. Isla Verde Assn.
Filed 6/11/13 SB Liberty v. Isla Verde Assn. CA4/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
SB LIBERTY,
LLC,
Plaintiff and Appellant,
v.
ISLA VERDE ASSOCIATION, INC.,
Defendant and Respondent.
D061261
(Super. Ct. No. 37-2011-00059253-
CU-MC-NC)
ORDER DENYING REHEARING
AND MODIFYING OPINION
NO CHANGE IN JUDGMENT
THE COURT:
It is
ordered that the opinion filed herein on May 22, 2013, be modified
as follows:
1. On page 8, first sentence of the last
paragraph beginning with "On December
28, 2011," the words "the Association's" in the
phrase "the Association's motion for preliminary injunction" are
changed to "SB Liberty's" so the sentence reads:
On December
28, 2011, the court issued its order denying SB Liberty's motion
for preliminary injunction.
2. On page 18, at the end of footnote 11, add
the following sentence:
It is undisputed that attorney Lepiscopo was
3. In the caption on page 1, the designation of
SB Liberty, LLC as "Plaintiff and Respondent" is changed to
"Plaintiff and Appellant," and the designation of Isla Verde
Association, Inc. as "Defendant and Appellant" is changed to
"Defendant and Respondent."
4. The counsel listing on page 1 is deleted and
replaced with the following listing:
Lepiscopo
& Associates Law Firm and Peter D. Lepiscopo for Plaintiff and Appellant.
Epsten
Grinnell & Howell, William S. Budd; Gates, O'Doherty, Gonter & Guy,
Thomas A. Scutti and Douglas D. Guy for Defendant and Respondent.
There is no
change in the judgment.
Appellant's
petition for rehearing is denied.
NARES,
Acting P. J.
Copies
to: All parties
Filed 5/22/13 SB Liberty v. Isla Verde Assn. CA4/1
(unmodified version)
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opinion has not been certified for publication or ordered published for purposes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.
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
SB LIBERTY,
LLC,
Plaintiff and Respondent,
v.
ISLA VERDE ASSOCIATION, INC.,
Defendant and Appellant.
D061261
(Super. Ct. No. 37-2011-00059253-
CU-MC-NC)
APPEAL from
an order of the Superior Court
of San Diego County,
Frederick A. Mandabach, Judge. (Retired judge of the San Bernardino
Superior Court, assigned by the Chief Justice pursuant to article VI, section 6
of the California Constitution.)
Affirmed.
Epsten
Grinnell & Howell, William S. Budd and Thomas A. Scutti; Gates, O'Doherty,
Gonter & Guy and Douglas D. Guy for Defendant and Appellant.
Lepiscopo
& Associates Law Firm and Peter D. Lepiscopo for Plaintiff and Respondent.
INTRODUCTION
In 2006
Gregg and Janet Short (together the Shorts, who are not parties to this appeal
but are interested persons) purchased a home in the Isla Verde residential
community (Isla Verde). They then
transferred title to themselves as trustees of their family trust and later
transferred title to plaintiff SB Liberty, LLC (SB Liberty), a California
limited liability company organized in early 2011, which is owned by the Shorts
as trustees of their trust and is managed by Gregg Short, SB Liberty's sole
manager. The Shorts reside in the
home. Defendant Isla Verde Association,
Inc. (the Association) is a California nonprofit mutual benefit corporation
that is an association of the Isla Verde homeowners. It is undisputed that SB Liberty is a member
of the Association.
This action
against the Association for injunctive relief (among other things) arose when
the Association's board of directors (the Board) denied SB Liberty's retained
counsel, Peter D. Lepiscopo, access to the Board's September and October 2011
meetings. SB Liberty brought a motion
for preliminary injunction seeking to enjoin the Association and the Board from
taking any action to prevent or interfere with SB Liberty's representatives,
including Lepiscopo, attending and participating in the Board's meetings. The court denied the motion.
SB Liberty
appeals the denial of its motion for preliminary injunction, contending (1) the
Association─a "quasi-government entity"─has prevented SB
Liberty─
fundamental in nature─from attending the open sessions of the
Association's Board meetings by excluding its chosen
representative─attorney Lepiscopo
those meetings, thereby causing SB Liberty to suffer great and irreparable
harm; and (2) SB Liberty is entitled to send the representative of its own
choosing (Lepiscopo) to the open sessions of the Board's meetings because SB
Liberty is a member of the Association but not a natural person. We affirm the order denying SB Liberty's
motion for preliminary injunction.
FACTUAL
AND PROCEDURAL BACKGROUND
A.
Isla Verde
is a residential community consisting of 87 single-family properties located in
the Lomas Santa Fe area of Solana Beach.
The Association is a nonprofit mutual benefit corporation established to
conduct the business of Isla Verde's member homeowners. The Association conducts its business
pursuant to various governing documents, including the articles of
incorporation (Articles), protective covenants and restrictions (PC&Rs) and
bylaws (Bylaws).
The
Association operates through its board of directors (Board), which consists of
seven Association "members," which the Bylaws define as "[e]very
beneficial owner (as defined by California Code, and as distinguished from a
security owner) of real property situated in . . . Isla
Verde."
The Bylaws
contain rules governing the meetings of members and the Board. Article XV, section 15.14, of the Bylaws
provides that "[a]ny member in
good standing may attend any [Board] meeting, except those portions of such
meetings which are declared as 'Executive Session' meetings." (Italics added.)
After the
Shorts transferred title of their home to themselves as trustees of their
family trust in mid-2006, they submitted architectural plans to remodel the
their house, which eventually led to a dispute between the Shorts and the
Association regarding the scope of the construction the Shorts were permitted
to perform, eventually resulting in litigation brought by the Association.
SB
Liberty's articles of organization were filed in early 2011, establishing it as
a limited liability company with Gregg Short designated as the sole
manager.
Later that
year, the Shorts' retained counsel, Lepiscopo, provided notice to the
Association's legal counsel, William S. Budd, that he represented the
Shorts. In that notice, Lepiscopo
requested various documents and a "detailed summary of the purpose for and
status of any proposed amendments to the governing documents."
Thereafter,
Lepiscopo advised Budd that he might attend the September 14
Shorts. Budd advised Lepiscopo that he
was not planning to attend the September meeting and asked that Lepiscopo not
attend, stating that "the Rules of Professional Conduct prohibit
communication with a represented party without permission from that party's
attorney."
Lepiscopo
replied, indicating his attendance at the upcoming September 14 Board meeting
would not implicate the Rules of Professional Conduct because he would be
appearing as a representative of his clients, whom he again identified as Gregg
and Janet Short.
On the day
before the Board meeting, Budd reiterated in an e-mail to Lepiscopo that he was
not allowed to attend the Board meeting over Budd's objection, as it would
violate rule 2-100 of the Rules of Professional Conduct, and also instructed
Lepiscopo that he could not communicate with his client without Budd's
permission.
Lepiscopo
responded with a letter, which he sent to Budd by e-mail and fax, disagreeing
with Budd's interpretation of rule 2-100 and stating that he (Budd) and the
Board "do not hold a veto over [the Shorts'] right to decide the
manner in which they attend any [Association] Board meeting," and
reiterating that he (Lepiscopo ) planned to attend the September 2011 board
meeting on behalf of the Shorts as their representative.
Lepiscopo
attempted to attend the September 2011 Board meeting on behalf of the Shorts,
but was denied access to the meeting.
Specifically, after he advised the Board that he represented the Shorts,
Lepiscopo was asked to leave and was advised that the Shorts could be at the
meeting, but not their attorney. When
Lepiscopo refused to leave, the meeting was adjourned to a board member's
residence.
The next
day the Shorts, as trustees of their family trust, recorded a grant deed
conveying ownership of their residence to SB Liberty, a California limited
liability company.
About a
week later the Shorts, as trustees of their trust, and Gregg Short, as the
manager of SB Liberty, executed─as principals─a "Specific
Power of Attorney" (which they recorded two days later) that purportedly
gave Lepiscopo─as their attorney-in-fact or agent─the right to "present
requests and motions" to the Board and to "attend and
participate" in the Board's meetings on their behalf, "as fully, to
all intents and purposes, as [the] Principals might or could do if personally
present."
Thereafter,
Lepiscopo notified Budd of his intention to attend the Board's October 2011
meeting on behalf of the Shorts.
Lepiscopo attached to his letter a copy of the recorded power of
attorney.
In a reply
letter, Budd stated that the power of attorney "is really nothing more
than authorization from the Shorts to act as their attorney"; "[i]t
doesn't confer any power on you except to attend meetings and advocate their
interests"; and "[i]t doesn't even qualify as a proxy because it
expressly withholds the power to vote at membership meetings." Budd also stated:
"[W]hile [the Power of Attorney] purports to give
you the power to make motions, you may not [do so] for two reasons: First, only Board Members can make motions at
board meetings. Second, only members can
make motions at membership meetings.
That power of attorney does not appear to confer any membership rights
to you because a membership cannot be parsed out among different people. In other words, one person cannot have voting
rights, while another has the right to make motions at membership
meetings."
In his
letter, Budd advised Lepiscopo that he would forward to the Board Lepiscopo's
correspondence and his "request to attend meetings on behalf of the
Shorts." Budd informed Lepiscopo of
the time and place of the Board's October 2011 meeting and stated that the
Board would consider in executive session his request to attend, and it would
advise him of their decision before the open session began.
At the
October 12, 2011 Board meeting, after the Board met in executive session, the
Board's chairperson advised Lepiscopo that the Board had met and voted to
exclude his attendance at the meeting, asked him to leave, and he did.
B.
SB Liberty
commenced this action against the Association in late October 2011, by filing a
complaint in which it sought injunctive relief, a refund of allegedly unlawful
increases in annual dues, specified civil penalties, and declaratory
relief. SB Liberty attached to the
complaint copies of the Articles, the PC&Rs, and the Bylaws.
1.
injunction
Soon
thereafter, SB Liberty filed an ex parte application for an order to show cause
hearing re preliminary injunction and for the issuance of a temporary
restraining order pending hearing on a preliminary injunction (motion for
preliminary injunction), seeking (as pertinent here) a preliminary injunction
restraining and enjoining the Association and its Board "from taking any
and all action, whether directly or indirectly, to prevent or interfere with SB
Liberty's representatives, including its legal counsel, Mr. Lepiscopo,"
from (1) "presenting written motions or proposals to [the Association]
prior to any HOA Board Meeting"; (2) "attending and fully
participating in the November 2011 HOA Board Meeting"; and (3)
"attending and fully participating in any future HOA Board
Meeting."
In support
of its motion, SB Liberty asserted the Association is a quasi-governmental
entity and, as SB Liberty's "association and member rights are fundamental
in nature," its loss of such rights constituted irreparable harm. SB Liberty also asserted the Association's
governing documents and various sections of the Civil Code and Corporations
Code "support SB Liberty's position that Mr. Lepiscopo was authorized to
attend the September and October 2011 [Association] Board meetings."
In its
opposition to the motion, the Association argued "[t]here is no legal
basis for allowing a member's legal counsel to appear before the Board without
his client present, and without [the Association's] counsel at the Board
meeting." The Association also
asserted that Lepiscopo's direct contact with the Board without the
Association's permission would be a violation of rule 2-100 of the Rules of
Professional Conduct; "[t]he only
persons allowed to attend a meeting are members"; Lepiscopo was
"neither an officer nor [a] member of [SB Liberty]"; and SB Liberty's
power of attorney did not grant Lepiscopo "rights of membership or
ownership in SB Liberty's real property."
Following a
hearing on the motion and submission of supplemental briefing by the parties,
the court took the matter under submission.
a. Ruling
On December
28, 2011, the court issued its order denying the Association's motion for
preliminary injunction. Regarding the
issue of whether SB Liberty had met its burden of showing a reasonable
probability of prevailing on the merits, the court first noted that the parties
could not "point to a particular section, or sections, of the law" or
any treatises pertaining to the issue of whether SB Liberty, as a member of the
Association, could "designat[e] a representative to attend, and
participate in, [Association] meetings."
The court stated it "was left to conclude that the
issue . . . must be decided on general principles of law
relating to [common interest developments], corporations, [limited liability
companies (LLC's),] and agency."
The court
found it was undisputed that SB Liberty became a member of the Association when
the Shorts transferred ownership of their lot to SB Liberty. Citing sections 17150 and 17151 of the
Corporations Code, the court explained that "[m]anagement of an LLC is
vested in all members [of the LLC] unless the articles of organization provide
otherwise," and an LLC can be managed by one or more managers who need not
be members of the LLC. The court also
found it was undisputed that SB Liberty's counsel, Lepiscopo, was not a member
of SB Liberty.
The court
rejected SB Liberty's claim that the decision to exclude Lepiscopo from
Association meetings as SB Liberty's designated representative was an
abridgement of its First Amendment freedom.
Noting that SB Liberty was "free to appear through its manager
[(Gregg Scott)] and its members" and finding that Lepiscopo was neither a
manager nor a member of SB Liberty, the court concluded that "SB Liberty's
freedom has not been abridged by an act of the [Association]."
Noting that
SB Liberty's complaint described the Association as a nonprofit mutual benefit
corporation, the court found the Board had the authority under Corporations
Code section 7210 to determine how to conduct its meetings and to exclude
nonmembers from its meetings. Citing
Corporations Code section 7320 and noting that "[t]he parties fail[ed] to
point to a provision of the [Articles] or [Bylaws] which authorizes a member to
transfer membership or any right arising from membership except the right to
vote by proxy,"
name="_ftnref2" title="">[2]
the court found SB Liberty "is not allowed to transfer its membership
rights to [Lepiscopo]." The court
concluded that SB Liberty "ha[d] failed to show a reasonable probability
of prevailing on this issue at trial."
DISCUSSION
In support
of its claim that the court erroneously denied its motion for preliminary
injunction, SB Liberty contends that (1) the Association is a
"quasi-government entity" and SB Liberty's association, speech, and
member rights are fundamental in nature; (2) it is entitled to send the
representative of its own choosing─attorney Lepiscopo─to the open
sessions of the Board's meetings because SB Liberty is a member of the
Association but not a natural person; and (3) by preventing Lepiscopo from
attending and participating in those meetings on behalf of SB Liberty as its
representative, the Association has caused it to suffer a loss of its
fundamental rights, which constitutes great and irreparable harm. These contentions are unavailing.
A.
The general
purpose of a preliminary injunction
is to preserve the status quo pending a determination on the merits of the
action. (Continental Baking Co. v.
Katz (1968) 68 Cal.2d 512, 528.)
"'The granting or denial of a preliminary injunction does not
amount to an adjudication of the ultimate rights in controversy. It merely determines that the court,
balancing the respective equities of the parties, concludes that, pending a
trial on the merits, the defendant should or . . . should
not be restrained from exercising the right claimed by him.'" (Ibid.)
A trial
court must weigh two interrelated factors when deciding whether to grant a
plaintiff's motion for a preliminary
injunction: (1) the likelihood
that the plaintiff will prevail on the merits at trial; and (2) the relative
interim harm to the parties from the issuance or nonissuance of the injunction;
that is, the interim harm the plaintiff is likely to sustain if the injunction
is denied as compared to the harm the defendant is likely to suffer if the
preliminary injunction is issued. (
Cal.4th 1090, 1109; Butt v. State of California (1992) 4 Cal.4th 668,
677-678.)
Thus,
"[t]he trial court's determination must be guided by a 'mix' of the
potential-merit and interim-harm factors; the greater the plaintiff's showing
on one, the less must be shown on the other to support an
injunction." (Butt v. State of
California, supra, 4 Cal.4th at
p. 678.) "A trial court may not
grant a preliminary injunction,
regardless of the balance of interim harm, unless there is some possibility
that the plaintiff would ultimately prevail on the merits of the
claim." (Ibid.) Accordingly, the
trial court must deny a motion for a preliminary
injunction if there is no reasonable likelihood the moving party will
prevail on the merits. (
(1989) 49 Cal.3d 432, 447; see Yu v.
University of La Verne (2011) 196 Cal.App.4th 779, 786-787 [order denying a
motion for preliminary injunction should be affirmed if the trial court
correctly found the moving party failed to satisfy either of the two factors].)
Appellate
review of a trial court's order granting or denying a motion for preliminary
injunction generally is "limited to whether the trial court's decision was
an abuse of discretion." (Butt
v. State of California, supra, 4
Cal.4th at p. 678; Yu v. University of La
Verne, supra, 196 Cal.App.4th at
pp. 786-787.) "A trial court will
be found to have abused its discretion only when it has '"exceeded the
bounds of reason or contravened the uncontradicted evidence."'" (IT Corp. v. County of Imperial (1983)
35 Cal.3d 63, 69.) The burden rests with
the party challenging a trial court's decision to grant or deny a preliminary
injunction to make a clear showing of an abuse of discretion. (Ibid.)
However, as
this court explained in California Assn.
of Dispensing Opticians v. Pearle Vision Center, Inc. (1983) 143 Cal.App.3d
419, 426, "when the matter is solely a question of a violation of law the
standard of review is not abuse of discretion but whether statutory or
constitutional law was correctly interpreted and applied by the trial
court."
B.
In denying
SB Liberty's motion for a preliminary injunction, the court found that the
Board may exclude from the open sessions of its meetings a person like
Lepiscopo who is not a member of the Association and determined that SB Liberty
failed to meet its burden of showing a reasonable probability of prevailing on
the merits at trial. The court did not err.
We first
conclude that SB Liberty's claim it is entitled to send the representative of
its own choosing─here, Lepiscopo─to participate in the open
sessions of the Board's meetings on SB Liberty's behalf, is unavailing. SB Liberty relies in part on Civil Code
section 1363.05, which is known as the Common Interest Development Open Meeting
Act and is part of the Davis-Stirling Common Interest Development Act (Civ.
Code, § 1350 et seq.).
name="_ftnref3" title="">[3] (See Civ. Code, §§ 1350 & 1363.05,
subd. (a).) With exceptions not pertinent
here, subdivision (b) of Civil Code section 1363.05 provides that "[a]ny
may attend meetings of the board of directors of the
association . . . ."
(Italics added.) Subdivision (h)
of that section provides that "[t]he board of directors of the association
shall permit any member of the
association to speak at any meeting of the association or the board of
directors, except for meetings of the board held in executive
session." (Italics added.)
The
Association's governing documents define who qualifies as a member of the
Association and address both the rights of members and their participation at
Board meetings. Article I, paragraph 7,
of the PC&Rs defines "Member" as "an Owner, as defined
below, who is entitled to membership in the Association as provided in this
declaration." That paragraph also
provides that "[o]wnership of a Lot shall be the sole qualification for
membership in the Association."
Article I, paragraph 8, of the PC&Rs defines "Owner" as
"the Record owner or owners, whether one or more persons or entities, of
fee simple title to any Lot, but excluding those having such interest merely as
security for the performance of an obligation."
Similarly,
article III of the PC&Rs states that "[t]he owner of a lot shall
automatically, upon becoming an owner of same, be a member of the
Association" and provides that a member "shall remain a member
thereof until such time as his ownership ceases for any reason." That article also provides that "[n]o
member shall resign his membership," and "[m]embership in the
Association shall not be transferred, encumbered, or alienated in any way,
except upon the sale or encumbrance of the lot to which it is
appurtenant."
Regarding
the qualifications and rights of members, article III, paragraph 3.1, of the
Bylaws provides that "[t]hose members whose annual dues and assessments
(if any) are current shall be considered 'Members in Good Standing'" and
that such members "have all rights inherent with that membership,
including, but not limited to the right to vote on all measures submitted to
the membership at any meeting or mail ballot," as well as "the right
to serve on any committee" and "the right to serve as directors
and/or officers."
Paragraph
15.14 of article XV of the Bylaws, which is titled "Participation of
members other than directors at meetings of the [Board]," provides that
"[a]ny member in good standing" may attend the open sessions of the
Board's meetings and delineates the scope of their participation at such
meetings:
"Any member
in good standing may attend any [Board] meeting, except those portions of
such meetings which are declared as 'Executive Session' meetings. Once an agenda item has been declared open
for discussion they may ask to be recognized for the purposes of addressing the
meeting in relation to that agenda item.
[¶] Members may submit written
proposals to the Secretary proposing matters for discussion and/or
resolution. . . . [¶] The
Board shall consider members'
proposals and consider and decide . . . the issues
raised." (Italics added.)
Here, the
court found, and the Association does not dispute, that SB Liberty became a
member of the Association when the Shorts transferred ownership of their lot to
it.
However, it
does not follow (as SB Liberty contends) that, by virtue of its status as a
member of the Association, SB Liberty is entitled to send Lepiscopo to attend
and participate in the open sessions of the Board's meetings on SB Liberty's
behalf as its representative. SB Liberty
is a California limited liability company.
Under the Beverly-Killea Limited Liability Company Act (Corp. Code,
§ 17000 et seq.) (the Act), management of the business and affairs of a
limited liability company
name="_ftnref5" title="">[5] is
vested in its members
name="_ftnref6" title="">[6]
unless the articles of organization provide otherwise. (Corp. Code, § 17150.)
of a limited liability company "may provide that the business and affairs
of the limited liability company shall be managed by or under the authority of
one or more managers who may, but need not, be members." (Id.,
§ 17151, subd. (a).)
Thus, under
the Act, the business and affairs of SB Liberty must be managed by the members
of SB Liberty or, if authorized by its articles of organization, by Greg Short,
who is the sole manager of SB Liberty.
(Corp. Code, §§ 17150, 17151, subd. (a).)
Here, it is
undisputed, as the court properly found, that Lepiscopo is not a member of SB
Liberty. The record also shows he is not
a manager of SB Liberty authorized by its articles of organization to manage
its business and affairs. Thus,
Lepiscopo is not authorized to manage the business and affairs of SB Liberty,
and SB Liberty's members and/or manager cannot delegate such management
authority to him.
Furthermore,
article III of the Association's PC&Rs and applicable statutory authority
prohibit SB Liberty from transferring to Lepiscopo any right arising from SB
Liberty's Association membership─except the right to vote by proxy (see
Corp. Code, § 7613)
name="_ftnref8" title="">[8]─such
as the right accorded to Association members under Article XV, paragraph 15.14,
of the Bylaws to attend and participate in the open sessions of the Board's
meetings.
power of attorney executed by the Shorts (discussed, ante) did not expressly give Lepiscopo the right to vote on behalf
of SB Liberty.
In
addition, as the court also properly found, the Board had the authority to
determine how to conduct its meetings and, thus, the power to prevent a
nonmember (Lepiscopo) from attending and participating in those meetings on
behalf of SB Liberty as its representative.
(Corp. Code, § 7210;
name="_ftnref10" title="">[10]
see Burt v. Irvine Co. (1964) 224
Cal.App.2d 50, 51.)
Also
unavailing is SB Liberty's claim that by preventing Lepiscopo from attending
and participating in the open sessions of the Board's meetings on behalf of SB
Liberty, as its representative, the Association has caused SB Liberty to suffer
great and irreparable harm. The record
shows, as the court properly found, that SB Liberty at all times was free to
attend and participate in those meetings through its members or (if permitted
by its articles of organization) its manager, Gregg Short. SB Liberty has failed to meet its burden of
showing the exclusion of Lepiscopo from those meetings as its representative
was an abridgment of its First Amendment or membership rights.
For all of
the foregoing reasons, we affirm the court's order denying SB Liberty's motion
for a preliminary injunction.
DISPOSITION
The order denying SB Liberty's motion for preliminary
injunction is affirmed. The Association
shall recover its costs on appeal.
NARES,
Acting P. J.
WE CONCUR:
McINTYRE, J.
AARON, J.
name="_ftn1" title="">[1] Lepiscopo represented SB Liberty during the trial court
proceedings in this matter and also represents SB Liberty on appeal.
name="_ftn2" title="">[2] The court found that "[t]he agency agreement signed by
[the Shorts] does not give Lepiscopo the right to vote."
