This case involved a dispute between a group of homeowners (Plaintiffs), their homeowners association (Association), individual members of Associations board of directors (Directors), and other homeowners who were operating a vineyard on their property for the purpose of making wine that was being sold to the public (Defendant Owners). The property in question, where the vineyard was being cultivated, is a 1.75 acre lot that is part of a 28 lot residential subdivision located in Thousand Oaks, California. The subdivision is a common interest development that is subject to a recorded declaration of CC&Rs and is governed by a homeowners association through its board of directors. Provisions contained in Associations CC&Rs prohibit the use of property within the development for any business or commercial activity. The CC&Rs also allow deviations from the applicable deed restrictions to avoid unnecessary hardships or expense, but further state that, no deviation shall be allowed to authorize a business or commercial use.
In 2005, Defendant Owners planted a 600 plant vineyard on a portion of their lot. Before planting the grape vines, Defendant Owners submitted a landscape plan to Associations board of directors which reflected the plan to create three separate vineyards, but did not reflect the number of grape vines to be planted and which did not disclose that the grapes to be grown on the property would be used to make wine that would be offered for sale to the public. Defendant Owners had their first harvest of the grapes in 2008, which they intended to use to commence a wine business.
In 2009, Defendant Owners filed a fictitious business name statement which reflected that they were doing business at their property under the names, Los Robles Hills Winery and Puerta del Cielo Vineyards. They also obtained a business license and a license from the Department of Alcoholic Beverage Control to sell their wine over the internet. Initially, the licenses reflected the address for the business at their residential property, but that was later changed to a different address that was not within the community where the vineyard was located. Defendant Owners then began selling the wine in 2010. The operation of the business included transporting the grapes that were harvested on the property to a location in Camarillo where the actual wine making took place and the wine was bottled with Defendant Owners personal label. The bottles of wine were then stored in and shipped from a different facility located in Malibu, California. Defendant Owners also use a truck in connection with the wine business that advertises their logo, Los Robles Hills Winery and their website on the exterior which is parked in the driveway of their property. Defendant Owners contended that the truck was kept covered while on the property. Defendant Owners also hosted periodic wine tastings by appointment at in their home tasting room.
Commencing in or about 2011, Plaintiffs began complaining that the operation of Defendant Owners vineyard on their property was commercial enterprise being conducted in violation of the CC&Rs and demanded that Defendant Owners cease operating a commercial vineyard. Associations five person board of directors investigated the complaints and three out of five of the directors concluded that Defendant Owners were not using their property for a non-residential purpose in violation of the CC&Rs and that there was no prohibited business or commercial activity being conducted on the property. Upset with the decision made by Associations board of directors, Plaintiffs filed their lawsuit against Association, Directors, and Defendant Owners in which they sought a judicial determination and decree that the subject CC&Rs and deed restrictions prohibit Defendant Owners from operating their vineyard on their property, and an injunction prohibiting the continued operations of Defendant Owners business on the subject property. Prior to trial, Plaintiffs dismissed the case against Association and Directors and proceeded to trial on their claims against Defendant Owners.
The trial court ruled that the HOA and its individual directors acted in good faith in addressing the facts and the activities of Defendant Owners, and the court should not re-examine their decision in the context of the lawsuit filed by Plaintiffs. The trial court found that Associations board of directors used its best judgment and acted in a reasonable manner under the circumstances presented to it. As such, the trial court ruled in favor of Defendant Owners, and issued a statement of decision that applied the rule of judicial deference which courts have broadly construed to stand for the proposition that Association had discretion to select among means for remedying violations of the CC&Rs without resorting to expensive and time-consuming litigation, and the courts should defer to that discretion. The trial court also awarded Defendant Owners $250,506.50 in attorneys fees out of the more than $350,000.00 that was being requested. Plaintiffs appealed the trial courts judgment in favor of Defendant Owners and the award of the more than $250,000.00 in attorneys fees, and Defendant Owners appealed the trial courts denial of more than $100,000 of the fees that they incurred.
On review, the appellate court reasoned that Associations board made a decision concerning the operation of the common area development and whether Defendant Owners violated the prohibition contained in the CC&Rs against the use Defendant Owners property for business or commercial activity. Associations directors reasoned that the restriction in the CC&Rs did not encompass Defendant Owners operation of the vineyard because it did not affect the residential character of the community. As such, the appellate court found that the trial court properly deferred to Directors discretionary decision that Defendant Owners operation of the vineyard did not violate the prohibition against business or commercial activity because it did not affect the residential character of the community.
The appellate court affirmed the trial courts judgment and further stated, the Directors correctly interpreted the prohibition of business or commercial activity in a manner that did not encompass activity that has no effect on the communitys residential character, stating that the purpose of the prohibition is to preserve the communitys residential character and the Directors made their decision upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, and the directors were in a much better position than the courts to evaluate the vineyards effect on the community. Therefore, the court should defer to the Boards authority and presumed expertise. Alternatively, the court stated that as a matter of law, Defendant Owners operation of the vineyard was not a prohibited business or commercial activity because it does not affect the communitys residential character and absurd consequences would flow from construing the CC&Rs as prohibiting any business or commercial activity whatsoever irrespective of its effect on the residential character of the community. The appellate court also affirmed the trial courts judgment as to the attorney fees that were awarded to Defendant Owners.
The reported case decision, which may be viewed via the below link also sets forth an extensive dissenting opinion that discusses the Judicial Deference Rule and states that the application of the judicial deference rule to the facts of this case would mean that there would be few board decisions to which it did not apply. The dissenting judge stated that, the judicial deference rule does not create a blanket immunity for all the decisions and actions of a homeowners association, and further, to monetarily punish plaintiffs with attorneys fees is not only unfair, it is unconscionable.
California Appellate Court Decision- Certified for Partial Publication (December 17, 2018).
See case decision: Eith_v._Ketelhut_(Cal._App._2018)1