1100 Wilshire Prop. Owners Ass'n v. Wilshire Commercial, LLC

1100 WILSHIRE PROPERTY OWNERS ASSOCIATION, Plaintiff, Cross-defendant and Appellant, v. WILSHIRE COMMERCIAL, LLC, Defendant, Cross-complainant and Respondent.

B285336

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE

August 23, 2019

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC564800)

APPEAL from an order of the Superior Court of Los Angeles County, Louis M. Meisinger, Referee. Affirmed.

Law Offices of Jeffrey M. Cohon and Jeffrey M. Cohon for Plaintiff, Cross-defendant and Appellant.

Winston & Strawn, Saul S. Roastamian and Diana Hughes Leiden, for Defendant, Cross-complainant and Respondent.

A court-appointed referee sanctioned plaintiff and appellant 1100 Wilshire Property Owners Association (the Association) $31,065 for taking a frivolous legal position in connection with its board of directors election—a position inconsistent with the referee's own previously expressed interpretation of the Association's election rules. We consider whether the sanctions order should be reversed because the position the Association advocated was a good faith interpretation of the election rules, or, as the Association now contends, because it was deprived of an opportunity to withdraw the brief asserting the frivolous position before sanctions were imposed.

I

A

The development at 1100 Wilshire Boulevard (the Building) is a mixed-use building comprised of 228 residential condominium units and commercial space. The residential condominium unit owners and defendant and respondent Wilshire Commercial, LLC (Wilshire Commercial),¹ the entity that is the current owner of the two commercial "lots" in the development (including the Building's commercial garage), are all members of the Association and part owners of the building.

An Amended and Restated Declaration of Covenants, Conditions and Restrictions and Reservation of Easements (the CC&Rs) governs the Building. The CC&Rs locate power tomanage the Building in the Association's five-member Board of Directors (the Board), except for certain actions that require approval of a majority of the members of the Association. The Board acts under the authority of the Association's bylaws.

B

A dispute eventually arose between the Association and Wilshire Commercial regarding the procedures specified in the CC&Rs and Association bylaws for electing directors to the Board.

Section 3.3.1 of the CC&Rs states residential owners "shall be entitled to one (1) vote for each Residential Condominium owned by such Residential Owner." As for commercial owners, section 3.3.1 states the owner of each of the Building's two commercial "lots" is entitled to 10 votes (i.e., 20 votes total for the commercial owners).

The CC&Rs provide a further concession to the Building's commercial owners regarding representation on the Board. Section 3.3.4 of the CC&Rs states as follows in pertinent part: "To assure the Commercial Owners' representation on the Board, at least one (1) of the directors on the Board shall be elected solely by the vote of the Commercial Owners (the 'Commercial Director'). In selecting such Commercial Director each Commercial Owner shall be entitled to the number of votes allocated to the Commercial Lot(s) owned by such Commercial Owner in Section 3.3.1 . . . and the Person receiving the greatest number of votes shall assume such Commercial Director position."

The Association bylaws incorporate the substance of the above-quoted CC&R voting provisions. But the bylaws also include a provision regarding "Cumulative Voting," section 2.7. Section 2.7 states in relevant part as follows: "In any election of the Board in which two (2) or more positions are to be filled, every Owner entitled to vote at such an election shall have the right to cumulate his votes and give one candidate, or divide among any number of candidates, a number of votes equal to the number of Directors to be elected to such Committee multiplied by the number of votes which such Owner is otherwise entitled to cast pursuant to the [CC&Rs] and these Bylaws . . . ."

The Association sued Wilshire Commercial, and Wilshire Commercial responded by filing a cross-complaint against the Association and several individual defendants.² One of the claims apparently raised in Wilshire Commercial's cross-complaint was that the Board impermissibly adopted rules permitting Wilshire Commercial (as the owner of both of the Building's commercial lots) to vote only for the Commercial Director seat on the Board, rather than being permitted to vote for any of the other four seats. The lawsuits were assigned to retired judge Louis Meisinger (Referee) to decide as referee, and the parties briefed the issues concerning voting for resolution.

At a hearing in March 2017, the Referee ruled the CC&Rs and Association bylaws permitted the Building's commercial owners to vote not just for the Commercial Director seat but for the other four seats on the Board. Counsel for the Association summarized his understanding of the Referee's ruling, stating: "It contemplates . . . once Wilshire Commercial exercises its votes in connection with its commercial director, whatever the remaining votes are can be cast on a cumulative basis for the rest of the residential directors." The Referee responded, "Right." The Association's attorney sought further clarification of how that would work in practice, and the Referee stated if Wilshire Commercial used their 20 votes to vote for the Commercial Director "they've got 80 left to be spread around the remaining seats under cumulative voting rules."

The written ruling the Referee prepared in connection with the hearing similarly relied on the Association bylaws' cumulative voting provision to support its conclusion that Wilshire Commercial was not restricted to voting only for the Commercial Director seat. The Referee concluded the commercial owners did not need cumulative voting to elect their guaranteed Commercial Director; rather, he reasoned, "[c]umulative voting could only become relevant if the Commercial Owners are casting votes for other [B]oard candidates."³

Later, in preparation for a general election of the Board to take place in May 2017, the Association designed a ballot for use by the owner(s) of commercial lots, i.e., Wilshire Commercial. The ballot stated: "'The Commercial Lots have a total of 10 votes for each lot, which must be cast as a unit. Each commercial lot may choose to cast its 10 assigned votes for either a Commercial Director OR Residential Directors, but not both. Should the votes assigned to a single Commercial Lot be cast for both the commercial AND residential seats, the ballot will be illegal and will not be counted. If both Commercial Lots elect to cast all of their votes for Residential Directors, the ballot will be considered legal, but a Commercial Director will not be elected.'"⁴ The ballot as designed by the Association further stated "'[t]here is no cumulative voting for the Commercial Director, however[,] cumulative voting is permitted for the Residential Directors.'"

The parties were before the Referee on another issue the day after Wilshire Commercial received the ballots designed for use in the upcoming general election. Counsel for Wilshire Commercial expressed concern, based on the ballot it received, that the Association would disregard the Referee's prior votingruling at the upcoming general election by not allowing "the commercial owner to cross-vote with the cumulative votes that were discussed—80/20, right? 20 votes for the commercial director; 80 votes for the other four seats." Counsel for Wilshire Commercial emphasized the Association's attorney "said it at the last hearing on the voting—to say, just to confirm, 20/80" and sought a representation on the record that this voting procedure would be followed at the upcoming election. The Association's attorney complained he was being "sandbagged" by the discussion of the issue at a hearing on another topic, and counsel for Wilshire Commercial agreed to postpone discussion on the topic until it filed a motion (on short notice). The Referee set the matter for hearing on an expedited basis and warned the parties that "if an election takes place in violation of an order that I made, that's the wrong judge to do that to."

The "Motion Re General Election" subsequently filed by Wilshire Commercial on May 2, 2017, (after a meet and confer process) argued the commercial lot ballots designed by the Association violated the Referee's prior ruling and the cumulative voting provision of the Association bylaws because it prohibited the commercial owner(s) (i.e., Wilshire Commercial) from voting for the other four Board seats in addition to the Commercial Director seat. The Association's opposition to the motion, filed just over a week later, conceded the Referee had previously found that "only commercial owners could vote for the commercial director, and that the commercial owners could (after first voting for the commercial director) cast its remaining votes for candidates nominated for residential directorships." But the opposition nonetheless argued it was not "remotely the case," under the CC&Rs and Association bylaws, that WilshireCommercial could cast 20 votes for the Commercial Director seat and still retain 80 votes to spread across the candidates for the other four Board seats.

The Referee resolved the dispute at a hearing on May 22, 2017, after hearing argument from counsel. Characterizing as an "absurdity" the Association's position that each commercial lot owner must either vote for a Commercial Director or "cross-vote" for other Board seats—but not both, the Referee...