Sometimes, an HOA Can Sue on Behalf of its Members
This post was primarily authored by Zachary B. Young, a “Rising Star” for four years running who was recently elevated to Partner at Patton Sullivan Brodehl LLP.
“Standing” is the legal term used to describe the requirement that a lawsuit be brought by the person(s) or entity(ies) having a right to bring the claim, generally referred to as the “real party in interest.” Lawsuits fail, often at an early stage, when brought by a party who lacks standing.
In a recent case called River’s Side at Washington Square Homeowners Association v. Superior Court of Yolo County, the Court wrestled with the question whether a homeowners association has standing to bring a lawsuit on behalf of its members. Ultimately, the Court concluded that California law provides multiple potential avenues by which a homeowners association might establish standing, depending on the circumstances of the case.
River’s Side at Washington Square Homeowners Association (“HOA”) is a homeowners association that was established to manage a development consisting of 25 residential units and common areas. The units are separately owned by individuals and the development also includes common areas that are owned by the HOA.
After several units experienced problems arising from apparent construction defects, the HOA brought a lawsuit against the developers. The lawsuit detailed defects in six of the residential units, including water damage and cracks in the walls around windows. The lawsuit also generally alleged defects in the common areas of the development, without providing any detail.
The defendant developers challenged the lawsuit based on lack of standing, arguing the HOA did not have standing to bring a lawsuit based on defects and damage to the individual units within the development.
The trial court agreed, concluding the HOA lacked standing because the claims focused on damage to the individual residential units, and the claims belonged to the separate unit owners.
The HOA appealed.
Court of Appeal: reversed; California law provides two potential paths for the HOA to establish standing
On appeal, the appellate court began its standing analysis by recognizing that the HOA may be able to bring the lawsuit on its own behalf and separately may be able to establish standing as a representative action brought on behalf of the separate unit owners.
Focusing first on the potential for the HOA to bring the lawsuit on its own behalf, the appellate court zeroed in on California Civil Code section 5980. In relevant part, Section 5980 provides that a homeowners association may bring a lawsuit in its own name as the real party in interest when there is alleged damage to a common area or an area that the HOA is obligated to repair and maintain. Although clearly not the “heart of the case,” the appellate court pointed out that the HOA’s lawsuit did include general allegations of damage to common areas. Therefore, the HOA had standing under Section 5980 to pursue its limited claims for damage to the common areas. However, Section 5980’s reach did not provide the HOA standing to pursue the claims stemming from damage to the individual units.
Separately, the appellate court next considered the potential for the HOA to bring a representative lawsuit on behalf of the separate unit owners whose individual units had been damaged. California law allows a representative lawsuit to be brought when there is an “ascertainable class” (here, the individual unit owners within the development) that has a “well-defined community of interest in the questions of law and fact.” The appellate court reasoned that there may be a community of interest in questions of law or fact relating to the unit owners within the development whose units had experienced damage, although that issue was not originally discussed at the trial level. If a community of interest was established, the HOA would have standing to bring a representative action. Accordingly, the appellate court sent the case back to the trial court to investigate whether this element could be met, which would allow the HOA’s entire lawsuit to proceed over the developer’s standing objections.
Standing is a strict requirement necessary for any lawsuit; however, the River’s Side at Washington Square Homeowners Association case shows how California law provides different pathways for parties to establish standing despite not being the apparent real party in interest.
In the context of homeowners associations and similarly situated organizations, this is significant because it allows homeowners to pool resources to bring a lawsuit. Although the damage to any one unit may not justify the costs of a lawsuit and the financial limitations of any one unit owner may prevent bringing a lawsuit, lawsuits brought by homeowners associations on behalf of individual owners may provide a means to bring a lawsuit that would not otherwise be practical.