It happens so often. A common interest owners association waits more than eight (8) years after substantial completion of the development to file suit for construction defects. Then, after almost two (2) years of litigation, and after significant costs are incurred, counsel for the owners association recommends a settlement which will not fund what some of the individual owners believe to be necessary repairs. What can the individual owners do? If they file suit directly, any complaint would likely be time barred under the 10 year statute of limitations under Code of Civil Procedure § 337.15 (not to mention the fact that the individual owners would have to directly litigate with the developer). But there is another option: a Motion to Intervene pursuant to Code of Civil Procedure § 387. The issue then, however, is whether the individual owners’ Motion to Intervene is timely given that suit for construction defects was filed years before by the owners association and the owners, presumably, had notice of the claims for alleged defects in construction.
This rather prickly question was dealt with in the recent Court of Appeal, Fourth District, decision in Ziani Homeowners Association v. Brookfield Ziani LLC (2015) WL 9311660 (“Ziani”). Ziani involves the Ziani Condominium development in Newport Coast, California. Brookfield Ziani LLC constructed the development in 2003 and 2004. In July 2012, shortly before the 10 year Statute of Limitations expired, the Ziani Homeowners Association sued Brookfield Homes, and others, alleging construction defects including major plumbing defects.
The litigation went on for about two years. The counsel for the owners association, the well known Fenton Grant Mayfield Kaneda & Litt (“Fenton Grant”) law firm, communicated with the owners association at board meetings and, apparently, initially assured the owners that the proceeds from any settlement would be sufficient to pay for necessary plumbing repairs in the common areas as well as inside the individual units (some of the plumbing repairs were proposed for interior unit areas, but the owners association
complaint alleged that the owners association had the general authority and responsibility to resolve all the claims involving plumbing defects).
Over time, the Fenton Grant firm communicated at owners association board meetings that less and less settlement funds would be available and settlement proceeds, after all, would not be sufficient to pay for all plumbing repairs. Indeed, prior to any individual owners seeking to intervene, the Fenton Grant firm advised that not only would there be insufficient funds to pay for plumbing repairs, but that reserve funds would be depleted in order for repairs to occur, that the settlement would only fund the cost of PEX [plastic] piping, that the settlement would leave the individual unit owners with some combination of out-of-pocket expenses for plumbing repairs and individual unit owners who had already paid for plumbing repairs would not be reimbursed.
In May 2014, some 10 years after completion of the Ziani development and nearly two years after the construction defect lawsuit was filed, certain of the individual unit owners, believing that they had been misled, filed a Motion to Intervene. The Motion to Intervene was supported by declarations from the owners together with a class action complaint. The (moving) individual unit owners argued mandatory intervention was proper because the movants were individual unit owners, the proposed settlement would impair or impede the movants’ ability to protect their interests, the owners association board and its counsel were no longer adequately representing the movants’ interests and the Motion was timely because the movants filed promptly after learning the owners association board and its counsel were no longer adequately representing movants’ interests (the individual unit owners also argued that permissive intervention was appropriate as well).
The Motion to Intervene was denied by the trial court as being untimely. The trial court ruled that the Motion to Intervene was untimely given that the Motion was filed nearly two years after the construction defect lawsuit was filed by the owners association.
The individual unit owners appealed. The Court of Appeal reversed on the basis that the trial court should have measured the timeliness of the Motion to Intervene based on the date the individual unit owners knew or should have known their interests in this litigation were not being adequately represented, and not based on the filing of the owners association complaint. In its holding, the Court of Appeal noted that there was no controlling California authority as to when to measure the timeliness of a Motion to Intervene in a situation as presented in Ziani, but, held that, because Code of Civil Procedure § 387 was modeled after and was virtually identical to Federal Rule of Civil Procedure 24, case law interpreting Federal Rule of Civil Procedure 24 should apply and, based on
the individual unit owners’ knowledge of interference with interest and not the filing of the construction defect lawsuit. It should be noted that the Court of Appeal did not rule that the Motion to Intervene was timely, but ordered that, on remand, the trial court was to examine the timeliness of the Motion based on the date of knowledge of the individual owners.
Ziani will certainly provide some road blocks to resolution of owners association construction defect disputes. However, in cases where the counsel for the owners association is diligent in advising the owners of the status of the owners association litigation, and its risks, Motions to Intervene will likely fail as being untimely if the Motions are filed well after the owners association construction defect lawsuit is underway.
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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