In Re: Cypress Ridge Owners Association, 18CV-0045

Hearing: Petition for Court Order Reducing the Percentage of votes Necessary to Amend the Declaration of Covenants, Conditions and Restrictions

Date: April 5, 2018

Petitioner Cypress Ridge Owners Association (“Petitioner” or “Association”) is a California nonprofit mutual benefit corporation and a homeowners’ association for a 386-lot residential development located in the Arroyo Grande, San Luis Obispo County, California, with a principal mailing address at 1400 Madonna Road, San Luis Obispo, CA 93405. Petitioner filed its Petition for Court Order Reducing the Percentage of Votes Necessary to Amend the Declaration of Covenants, Conditions and Restrictions pursuant to Civil Code section 4275, on January 19, 2018 (“Petition”). On February 16, 2018, this Court made an ex parte order setting the Petition for hearing on April 5, 2018, and setting forth how notice would be given to members of the Association, as well as a procedure and briefing schedule for any opposition and reply (“Order”).

On March 5, 2018, Cory Bauer (“Bauer”), CCAM, community manager for the Association, filed a declaration stating that on February 26, 2018, a cover letter and the Order had been mailed to the members of the Association at their respective addresses, as shown in the corporate records maintained by the Association or at the property address, if different. Included as exhibits to the declaration is a copy of the notice and a copy of the membership roster with member addresses. (“Bauer Service Decl.”)

Pursuant to the Order, any member of the Association had until March 22, 2018, to file with the Court and serve on Petitioner’s counsel at Beaumont Tashjian, a written opposition to the Petition. On March 28, 2018, counsel for Petitioner filed a Notice of Non-Opposition, setting forth that to date counsel had not received any opposition to the Petition. No opposition papers have been filed with the Court.

The 386-lot Cypress Ridge development (“Project”) is managed by a Board of Directors consisting of volunteer homeowners with the assistance of Bauer, a professional community manager. The Project is governed by a Declaration of Covenants, Conditions, and Restrictions (“CC&Rs” or “Declaration”) recorded on April 21, 2000. The Association was incorporated on June 27, 2000. Members of the Association (“Members”) who own a residential lot in the Project are entitled to vote on membership matters. One of the matters that Members must vote to approve is an amendment to the CC&Rs, pursuant to Article 14, Section 14.2 of the Declaration, and Civil Code section 5115. Article 14, Section 14.2, of the Declaration requires sixty-seven percent (67%) of the Members vote for a material amendment to the Declaration, which the Amendments are.

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Petitioner proposes amendments to the original Declaration that include (1) an amendment to allow the Board of Directors to enter into maintenance agreements with the golf course or other owners of adjoining property, which would enable the Association to maintain, repair, and reconstruct portions of the perimeter fencing, landscaping, and other features benefitting the Project, and (2) an amendment to shift the maintenance, repair, and replacement obligation of the exterior fences separating the property of an owner-member of the Association and Association owned property, except for fences separating parks from owners’ lots, to owner-members (“Amendments”). In 2016, the Association’s Board of Directors began a review of the original Declaration. Thereafter, the Board consulted amongst themselves and with management and members of the Association, and prepared drafts of the Amendments. Bauer assisted the Association in its efforts to obtain votes of the Members. (See, Declaration of Cory Bauer in support of the Petition (“Bauer Decl.”).)

On February 21, 2017, Petitioner published an article describing the proposed Amendments that was emailed to the Members. (Bauer Decl., ¶ 5.) On February 22, 2017, Petitioner mailed a letter to Members requesting they vote on the proposed Amendments and setting forth the purpose of the Amendments. The letter set forth that the Board would hold a meeting to tabulate the ballots on April 11, 2017, and enclosed a copy of the Amendments, secret ballot, and voting instructions. (Bauer Decl., ¶ 4.) Additional materials regarding the proposed Amendments were mailed to the Members on February 27, 2017, and emailed on March 4, 2017. (Bauer Decl., ¶ 7.) On March 23, 2017, members who had not yet submitted their ballots were contacted to encourage submission of ballots and in those instances where original ballots had been lost or misplaced, replacement ballots were provided, as necessary. (Bauer Decl., ¶ 8.) Reminders to vote were emailed to the Members on March 29, 2017 and April 5, 2017. (Bauer Decl., ¶ 9.)

Votes were counted on April 11, 2017. (Bauer Decl., ¶ 10.) Out of a total of three hundred eighty-six (386) Members, three hundred eleven (311) ballots were returned and counted on April 11, 2017. Thus, eighty-one percent (81%) of total Members voted. (Bauer Decl., ¶ 11.) Of the Members who voted, two hundred thirty-eight (238) and two hundred thirty-nine (239) voted in favor of adopting the proposed Amendments, respectively. Therefore, seventy-six percent (76%) of the voting Members cast a “yes” vote in favor of adopting the proposed and only nineteen percent (19%) of the total voting power, voted against the proposed Amendments. (Bauer Decl., ¶ 12.) To adopt the proposed Amendments by a sixty-seven percent (67%) vote requires the affirmative votes of two hundred fifty-nine (259) Members. Thus, the Final Vote failed by only twenty (20) and twenty-one (21) votes, respectively, or less than five percent (5%) of the total Membership. (Bauer Decl., ¶ 13.) In total, the Association secured a “yes” vote of fifty-one percent (51%) of Members, but not the sixty-seven percent (67%) required under the current Declaration. (Id.) Despite efforts to encourage members to vote, one hundred fortyseven (147) Members failed to vote. (Bauer Decl., ¶ 15.)

Petitioner hereby petitions the Court pursuant to Civil Code section 4275 for an order reducing the percentage of the affirmative votes necessary to approve the Amended CC&Rs. The Petition includes as exhibits a complete text of the proposed Amendment, a copy of the Association’s current recorded Declaration, the Association’s Articles of Incorporation, Bylaws, Election and
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Voting Rules and Procedures, and copies of the notice, ballot materials, and voting instructions used to solicit member approvals of the proposed Amendment. The Petition further attaches the declarations of Bauer, Community Manager, William Dorland, President of the Board of Directors (“Dorland Decl.”), and Tracy Neal, Esq., (“Neal Decl.”) counsel for the Association. The Petition further sets forth the effort made to solicit approval of the association members in the manner provided in the Declaration, the number of affirmative and negative votes actually received, and the number or percentage of affirmative votes required to effect the amendment in accordance with the existing declaration. In those respects, the Petition complies with Civil Code section 4275(a).

However, the short explanation for the reason for the Amendments given in the Petition is insufficient. The Petition itself states that the “reasons” for the Amendments are given in paragraphs 9 and 10 of the Petition. (Petition, ¶ 25.) However, paragraph 9 does not set forth why the maintenance obligations for fences needs to be shifted to owners, and why the Association needs to enter into maintenance agreements with the Golf Course. Dorland’s declaration states that the Association’s counsel has determined the CC&Rs do not address the Association’s current practices and demands, but does not set forth how the current practices and demands are not being addressed. (Dorland Decl., ¶ 4.) In short, Petitioners need to set forth the reason these particular Amendments will be beneficial to the Association.

Under Civil Code section 4275(c), in order to grant the Petition, the Court must make the following findings:

(1) The petitioner has given not less than 15 days written notice of the court hearing to all members of the association, to any mortgagee of a mortgage or beneficiary of a deed of trust who is entitled to notice under the terms of the declaration, and to the city, county, or city and county in which the common interest development is located that is entitled to notice under the terms of the declaration.

(2) Balloting on the proposed amendment was conducted in accordance with the governing documents, this act, and any other applicable law.

(3) A reasonably diligent effort was made to permit all eligible members to vote on the proposed amendment.

(4) Members having more than 50 percent of the votes, in a single class voting structure, voted in favor of the amendment. In a voting structure with more than one class, where the declaration requires a majority of more than one class to vote in favor of the amendment, members having more than 50 percent of the votes of each class required by the declaration to vote in favor of the amendment
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voted in favor of the amendment.

(5) The amendment is reasonable.

(6) Granting the petition is not improper for any reason stated in subdivision (e). (Civ. Code, § 4275(c)(1-6).)

Notice (Civ. Code, § 4275(c)(1))

Upon reviewing the Petition, the supporting declarations, and exhibits, the Court finds that Petitioner provided adequate written notice of at least 15 days of this hearing to the Members pursuant to its February 26, 2018, Order and section 4275(c)(1). (See, Bauer Service Decl.) However, Petitioner provides no evidence either that any mortgagees received notice, or that no mortgagees are entitled to notice. (See sections 2.25 (defining “Eligible Holder”), 13.4.6, 13.9(d) and 14.2 of the Declaration.1) Nor does Petitioner address whether notice was given to the County, to which it appears the County is entitled under section 14.7 of the Declaration. That section requires County approval for any changes or amendments to the CC&R’s regarding maintenance of Association property to be effective.

Balloting in Accordance with Governing Documents (Civ. Code, § 4275(c)(2))

The Petition further fails to establish that the balloting was conducted in accordance with the governing documents. Section 14.2 of the Declaration requires that in the case of any material amendment, which pursuant to that section the proposed Amendments are, the vote of fifty-one percent (51%) of the Eligible Holder and sixty-seven percent (67%) of the voting power of each class of Members shall be required. Under section 2.25, an “Eligible Holder” means “any first mortgagee who has given written notice to the Association specifying its name, address, and the residential lot number or address of the residential lot by the mortgage and requesting written notice of any or all of the events specified in this Declaration.” Petitioner does not provide any evidence whether there are any Eligible Holders, and if there are, whether they were given notice and opportunity to vote, and the result of that vote. As to the balloting procedure of the Members, the Association provided at least 30-days’ notice of the election to its Members. Balloting complied with the secret ballot requirements of Civil Code section 5115. Ballots were to be mailed to the “Inspectors of Elections.” While the balloting procedure generally was conducted in accordance with the Association’s governing documents, including the Association’s election rules, it is unclear who was appointed Inspector(s) of Elections and who tabulated the votes. The election rules establish who may and may not be appointed Inspector of Elections, and what their role is. None of the declarations 1 The case cited by Petitioner, Fourth La Costa Condominium Owners Ass’n. v. Seith, (2008) 159 Cal.App.4th 563, does not exempt the Court from making the finding required by the statute. Additionally, the CC&Rs in that case were different from those at issue here. Moreover, in the section of the case quoted by Petitioner it states that the lenders received the proposed changes and were given an opportunity to object. Here, there is no evidence any lenders received notice of the proposed Amendments.
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provided establish that fact. Moreover, the reference to “Inspectors” of Elections makes it sound as if there may have been more than one. The Court cannot find that the election was in accordance with the election rules without knowing if the Inspector of Elections was properly appointed. Moreover, the Petition does not establish that balloting was done according to applicable law.

Reasonably Diligent Effort (Civ. Code, § 4275(c)(3))

The Court finds that a reasonably diligent effort was made to permit all eligible Members to vote on the proposed amendment. Multiple notices and reminders were sent to Members. (Bauer Decl.)

50% of Votes in Class (Civ. Code, § 4275(c)(4))

The Court finds from the Petition and the exhibits that Members having more than 50% of the votes in a single class voting structure voted in favor the Amended CC&Rs and Restated Bylaws. The Association secured a “yes” vote of fifty-one percent (51%) of Members, and there is currently one class of members. (Bauer Decl., ¶ 13; Dorland Decl., ¶ 3; CC&Rs, ¶ 5.2.)

Reasonableness of the Amendments (Civ. Code, § 4275(c)(5))

Petitioner has set forth that much deliberation and preparation went into drafting the Amendments, and that the Board, its counsel, and a majority of the membership find them to be in the Association’s best interest. The Board’s counsel determined that the current CC&Rs do not address the Association’s current practices and demands. (Dorland Decl., ¶¶ 4,5; Neal Decl.) However, without evidence or an explanation of the reason for the Amendments as set forth above, the Court cannot find that the Amendments are reasonable.

Subsection (e) (Civ. Code, § 4275(c)(6))

After review of the proposed Amendments, the Court finds granting the Petition is not improper for any reason stated in section 4275(e), as more than fifty percent (50%) of the Members approved the Amendments, Declarant no longer owns any separate interest in the Project, and the Amendments will not impair any security interests. (Petition, ¶¶ 28, 29; Bauer Decl.; Dorland Decl., ¶ 3.)

The Court agrees with Petitioner that the current situation reflects voter disinterest or apathy, and the required 67% supermajority vote hinders the Association’s efforts to amend governing documents in the best interest of the Association. (See Fourth La Costa Condo. Owners Ass’n v. Seith (2008) 159 Cal.App.4th 563, 569 [decided on prior version of statute].) As explained above, no objections to the Petition have been filed.

As discussed above, the Court is unable to make the findings required under Civil Code section 4275(c)(1-2, 5) on the record presented. The Petition is denied without prejudice.