Case Name: Safakish v. Vanni, et al.
Case No.: 2016-1-CV-294900

According to the allegations of the complaint, Morgan Hill Vineyard Owner’s Association (“Association”) is an association formed by defendants Chris Vanni (“Chris”), and Donald E. Vanni (“Donald”) and Sharon L. Vanni (“Sharon”), in their individual capacity and as trustees of the Donald E. Vanni and Sharon L. Vanni Revocable Inter Vivos Trust (“Trust”) (collectively, “Defendants”). (See complaint, ¶¶ 1-9.) The Association acts as an owners association for the common interest development located at 16170 Vineyard Boulevard in Morgan Hill. (See complaint, ¶ 9.) Plaintiff Amir Safakish (“Plaintiff”) and Trust are owners of a condominium project at the subject property, where Plaintiff is a minority owner. (See complaint, ¶¶ 9-10.) Chris, and Donald and Sharon, in their individual capacity and as trustees of Trust, created the Association in a manner so that they could take advantage of Plaintiff, and did in fact engage in misconduct so as to breach the fiduciary duty owed to Plaintiff. (See complaint, ¶¶ 10-19.)

On May 9, 2016, Plaintiff filed a complaint against Defendants, asserting causes of action for:

1) Breach of fiduciary duty;
2) Declaratory relief;
3) Injunctive relief;
4) Unfair business practices;
5) Conspiracy; and,
6) Rescission.

Defendants demur to the first cause of action for breach of fiduciary duty on the ground that it fails to state facts sufficient to constitute a cause of action as to Sharon, demur to the second through sixth cause of action on the ground that they fail to join the Association as an indispensable or necessary party, demur to the fifth cause of action on the ground that the acts are privileged and thus cannot constitute a cause of action, and demur to the sixth cause of action on the ground that it fails to state facts sufficient to constitute a cause of action.

First cause of action

To plead a cause of action for breach of fiduciary duty, Plaintiff must show the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. (See Brown v. Cal. Pension Administrators and Consultants, Inc. (1996) 45 Cal.App.4th 333, 347-48.) Defendant Sharon argues that “Plaintiff does not allege that Sharon Vanni is or ever was an officer, director, or shareholder of the Association… [and] there is no other allegation in the Complaint that Sharon Vanni was otherwise a fiduciary or owed a fiduciary duty to Plaintiff, and there is no allegation as to the existence of a special relationship of confidence and trust between Sharon Vanni and Plaintiff giving rise to a fiduciary duty owed by Sharon Vanni to Plaintiff.” (Defs.’ memorandum of points and authorities in support of demurrer (“Defs.’ memo”), p.4:2-21.) The complaint does alleges that Sharon is a trustee of Trust, and that Sharon has engaged in certain specified misconduct as set forth in paragraphs 11 and 19; however, the complaint does not allege that Sharon acted on behalf of the Association. Also, the complaint alleges that only Donald and Chris acted on behalf of the Trust, as well as being officers and directors of the Association. (See complaint, ¶¶ 9, 11.) Moreover, it is unclear as to whether the first cause of action is alleged against Sharon in her individual capacity, and/or as trustee of Trust, and what the basis for liability in Sharon’s individual capacity may be. Sharon’s demurrer to the first cause of action is SUSTAINED with 10 days leave to amend.

Second through sixth causes of action—indispensable or necessary party

Defendants demur to the second through sixth causes of action on the ground that Plaintiff failed to join the Association as a party. (See Defs.’ memo, pp.4:22-28, 5:1-26, 6:1-28, 7:1-28, 8:1-28, 9:1-28, 10:1-28, 11:1-28, 12:1-28, 12:1-14; see also Code Civ. Proc. § 430.10, subd. (d).)

The second cause of action for declaratory relief alleges that “an actual controversy exists between the parties with regard to existence [sic] of the Association and principal purpose of the Association in that Association’s existence is not beneficial to its owners.” (Complaint, ¶ 23.) The third cause of action for injunction alleges that “The VANNIs have scheduled director’s meetings at times that they knew Plaintiff was not available in order to vote and approve their own agenda in Plaintiff’s absence… The VANNIs have caused detriment to the Plaintiff by hiring vendors who… have personal relationships with the VANNIs… [and] substantially overcharge for repairs… [and d]espite Plaintiff’s objections to the higher priced bids, the VANNIs have hired these vendors who they have personal relationships with and with whom they have engaged in self-dealing.” (Complaint, ¶ 26.) The fourth cause of action for unfair business practices alleges “Non payments of costs and expenses paid by plaintiff for the benefit of Association, and keep promising Plaintiff the debt will be paid by the association without any intent to pay to stop plaintiff from taking a legal action… [a]fter the association was formed, defendants unilaterally passed regulation that any party unable to pay the assessments will have a lien placed against its property plus penalty…without the required vote…[a]fter forming the Association, defendants paid for defendants’ attorney’s fees in excess of $6000.00 without Plaintiff’s consent or consultation… [a]fter the Association was formed, defendants represented to Plaintiff that all association related charges and expenses for the property inclusive of pre-association formation expenses should be sent to defendants for payment… [h]owever, defendants did not pay any of the submitted expenses and charges… Defendants passed regulation… [and] passed special assessments for a number of expenses which were not at all necessary… [and] refused to allow Plaintiff to review these assessments and cost items despite Plaintiff’s repeated requests for the same…[and] Defendants have held association meetings [without adequate notice]. (Complaint, ¶ 32.) The fifth cause of action for conspiracy alleges that Defendants “knowingly conspired together to wrongfully freeze-out Plaintiff from the Association to force Plaintiff to agree to all of their demands.” (Complaint, ¶ 35.) The sixth cause of action for rescission seeks to rescind the agreement to form the Association. (See complaint, ¶¶ 39-43.)

In opposition to the demurrer, Plaintiff asserts that “[t]he actual dispute is between Plaintiff and defendants who control the Association. Any judgment or order on the parties in this case will be enforceable against the Association without the necessity of naming the Association as a party to this action.” (Pl.’s opposition to demurrer (“Opposition”), p.3:19-22.) “Contrary to defendants’ assertion at their demurrer, the Court’s ruling in this case will not affect the Association… the focus of the Complaint is not the Association, but rather the alleged wrongful conduct of defendants that have affected Plaintiff’s rights as the owner of the property and a shareholder.” (Id. at p.6:6-10.)

However, the complaint specifically alleges that the alleged actual controversy is “with regard to [the] existence of the Association and [the] principal purpose of the Association.” The complaint seeks to rescind the agreement that formed the Association such that it would “cancel the Association.” The complaint additionally seeks to enjoin the majority shareholders of the Association from acting on behalf of the Association, and seeks damages for conduct in violation of the Association’s best interests. Any judgment by the Court on these allegations would indisputably affect Association. (See Holt v. College of Osteopathic Physicians and Surgeons (1964) 61 Cal.2d 750, 760-761 (stating that COA] is an indispensable party to this action… [s]ince plaintiffs seek to enjoin the performance by COPS of a contract between COPS and COA, the effect of a decree in favor of plaintiffs would be to enjoin COA as well as COPS”); see also Save Our Bay, Inc. v. San Diego Unified Port Dist. (1996) 42 Cal.App.4th 686, 692-693 (stating that “[a] person is an indispensable party if his or her rights must necessarily be affected by the judgment”).) The demurrer to the second through sixth causes of action on the ground that there is a defect or misjoinder of parties is SUSTAINED with 10 days leave to amend.

Fifth cause of action for conspiracy

Defendants also demur to the fifth cause of action for conspiracy on the ground that it is barred by the litigation privilege. As a preliminary matter, the Court notes that “[c]onspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.” (Moran v. Endres (2006) 135 Cal.App.4th 952, 954.) “A conspiracy cannot be alleged as a tort separate from the underlying wrong it is organized to achieve.” (Id.) Primarily, the fifth cause of action alleges a conspiracy to breach fiduciary duties owed to Plaintiff. However, as previously stated, the first cause of action fails to state facts sufficient to constitute a cause of action. Thus, the dependent fifth cause of action also fails to state facts sufficient to constitute a cause of action. As to the argument that the cause of action is barred by the litigation privilege, it is true that “the litigation privilege attaches to the publication of an assessment lien… regardless of whether malice or intent to harm was involved.” (Wilton v. Mountain Wood Homeowners Assn. (1993) 18 Cal.App.4th 565, 571.) However, the placement of the assessment lien is not an integral allegation of the fifth cause of action such that the cause of action could not be amended. Thus, the demurrer to the fifth cause of action on the ground that it fails to state facts sufficient to constitute a cause of action is SUSTAINED with 10 days leave to amend.

Sixth cause of action for rescission

Defendants demur to the sixth cause of action for rescission on the ground that it fails to state facts sufficient to constitute a cause of action because California law requires a common interest development to have an association. Here, the cause of action seeks to rescind the existing agreement that formed the Association. Even though an association may be required under California law, there is no suggestion that California law requires the subject agreement that governs the Association. The instant subject agreement could be void or voidable, or contains numerous void clauses—and California law would certainly not enforce a void agreement. Accordingly, Defendants’ argument lacks merit. The demurrer to the sixth cause of action for rescission on the ground that it fails to state facts sufficient to constitute a cause of action is OVERRULED.

The Court will prepare the Order.