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Schmidt v. Bank of America, N.A.

California Court of Appeal, Fourth District, First Division

February 21, 2014

Arnold J. SCHMIDT, as Trustee, etc., et al., Plaintiffs and Appellants,
v.
BANK OF AMERICA, N.A., et al., Defendants and Respondents.

APPEAL from judgments of the Superior Court of San Diego County, Eddie C. Sturgeon, Judge. Reversed. (Super.Ct. No. 37-2009-00068437-CU-OR-EC)

COUNSEL

Smaha Law Group, John L. Smaha, Gregory J. Borman; Niddrie Fish & Addams and David A. Niddrie, San Diego, for Plaintiffs and Appellants.

[168 Cal.Rptr.3d 245] Sheppard, Mullin, Richter & Hampton, LLP, Paul S. Malingagio, Los Angeles, and Kyndra J. Casper for Defendant and Respondent Bank of America, N.A.

Mulvaney, Barry, Beatty, Linn & Mayers, LLP, Robert A. Linn and Stacy H. Rubin, San Diego, for Defendant and Respondent Aragon Homeowners Association.

OPINION

IRION, J.

Plaintiffs Arnold J. Schmidt and Valerie A. Schmidt (together, the Schmidts), as cotrustees of the Arnold and Valerie Schmidt 2005 Revocable Trust, appeal judgments in favor of defendants Bank of America, N.A. (Bank of America) and Aragon Homeowners Association (Aragon HOA) after the court granted defendants' motions for summary judgment on the Schmidts' complaint for trespass, nuisance, and declaratory and injunctive relief. The Schmidts contend that the court erred in finding no triable issues of material fact regarding (1) the existence and scope of a roadway easement over the Schmidts' property; (2) the burden on the Schmidts' property created by Bank of America and the Aragon HOA's use of the roadway easement; (3) Bank of America's ownership of and control over the roadway easement; and (4) Bank of America's immunity as a lender under Civil Code [1] section 3434. The Schmidts further contend that Bank of America has not established its immunity as an individual condominium owner under former section 1365.9.[2] Bank of America and the Aragon HOA counter that no triable issues of material fact exist on the Schmidts' claims, and the court properly granted summary judgment. We conclude that the trial court's interpretation of the easement was erroneous and that triable issues of material fact preclude summary judgment as to both Bank of America and the Aragon HOA. We therefore reverse the judgments.

FACTUAL AND PROCEDURAL BACKGROUND

The Schmidts own a parcel of land along El Cajon Boulevard in La Mesa, California (the Schmidt parcel). On an adjacent parcel directly to the east (the Aragon parcel), a property developer constructed a condominium project called Aragon. That property developer, Barratt American Incorporated (Barratt), planned to develop the Aragon project in three phases, corresponding to three condominium buildings, all on the Aragon parcel abutting the Schmidt parcel. The three condominium buildings would share certain common areas and amenities and be governed by a single homeowners' association, the Aragon HOA. Barratt financed the Aragon project through a revolving credit agreement with Bank of America, as administrative agent for a group of lenders.

The Schmidt and Aragon parcels were once under the common ownership of Rose Miller Parks. In 1941, Parks conveyed the portion of her property that would become the Schmidt parcel to Edith Ford. Parks reserved for herself, however, an easement over the portion of the conveyed property adjacent to the property she retained. The portion of Parks's grant deed to Ford that recites the reserved easement reads as follows: " RESERVING to the grantor, her successors, assigns and/or heirs, the right of ingress and egress for [168 Cal.Rptr.3d 246] public road purposes over, along and across the Easterly 40 feet thereof."

Four years later, Parks sold her retained parcel, which would become the Aragon parcel, to Clemons Smith. Parks's grant to Smith included the following language: " ALSO an easement for public road purposes, and incidental purposes, over the Easterly 40 feet of the following described land...." This language purported to describe the reserved easement, though in different terms than Parks's earlier grant deed to Ford.

The Aragon parcel was conveyed several times through the years. Each subsequent grant recited the reserved easement, in the language of Parks's grant deed to Smith, until 2000. In that year, the then-owner of the Aragon parcel, Margaret Churchman, conveyed the Aragon parcel to her trust without reciting the reserved easement. Two years later, the trustees of Churchman's trust executed a deed that attempted to correct this omission. Two years after that, Churchman's trust deeded the Aragon parcel to Barratt. The grant to Barratt recited the reserved easement, again in the language of Parks's grant deed to Smith.[3]

Barratt began construction on the Aragon project and, within four years, had completed two of the three planned condominium buildings. As pertinent to this appeal, Barratt constructed certain features related to the Aragon project on, under, and around the reserved easement area on the Schmidt parcel. Barratt graded and paved the easement area for a private roadway, Troy Lane, that facilitates access from El Cajon Boulevard to a parking garage for the Aragon project. At the end of the roadway, on the Schmidt parcel, Barratt erected a locked gate. The gate prevents traffic from using Troy Lane as a throughway between El Cajon Boulevard (to the north) and Troy Terrace (to the south). Underneath Troy Lane, Barratt placed or improved certain subsurface infrastructure for the Aragon project, including sewer pipes, storm drains, oil and sand separators, and construction nails designed to hold steep dirt slopes in place.

After phase 1 of the Aragon project was completed, Barratt deeded the Aragon parcel to the Aragon HOA, reserving the phase 1 " building envelope" that comprised condominiums to be sold to individual owners and the phase 2 and phase 3 " modules" that would encompass those future buildings. Similarly, after phase 2 was completed, Barratt deeded the phase 2 " module" to the Aragon HOA, again reserving the phase 2 " building envelope" for sale to individual condominium owners. The easement reserved by Parks is not recited in either deed from Barratt to the Aragon HOA.

The operative declaration of covenants, conditions, and restrictions (CC & R's) for the Aragon project tasks the Aragon HOA with certain responsibilities for governing and maintaining the project. As relevant here, the CC & R's provide that the Aragon HOA " shall maintain the Offsite Maintenance Areas ... in a good condition of maintenance and repair [in] accordance with all City requirements." The CC & R's define the Offsite Maintenance Areas to include the easement over the Schmidt parcel that contains the Aragon roadway, the traffic gate, and the subterranean infrastructure improvements.

Barratt did not complete phase 3 of the Aragon project. After deeding the phase 2 module to the Aragon HOA, Barratt [168 Cal.Rptr.3d 247] defaulted on its credit agreement with Bank of America. Bank of America then began foreclosure proceedings on the deed of trust that Barratt had tendered as security for the credit agreement. Although the circumstances are unclear, the record reflects that Bank of America took title to various portions of the Aragon project in two trustee's sales. The first trustee's sale, approximately nine months after Barratt's default, resulted in Bank of America's acquisition of 16 individual condominium units in phases 1 and 2 that were completed (but not yet sold) and 10 planned condominium units in the uncompleted phase 3. The second trustee's sale, almost two years later, resulted in Bank of America's acquisition of the bulk of the Aragon parcel that had not yet been sold to individual condominium owners or deeded to the Aragon HOA. The deed obtained by Bank of America in connection with the second trustee's sale grants the easement reserved by Parks over the Schmidt parcel to Bank of America.

After Barratt completed construction of phases 1 and 2, along with the improvements to the easement area, the Schmidts filed this lawsuit. The Schmidts' initial complaint alleged causes of action for trespass, nuisance, and injunctive and declaratory relief against five named defendants, including Bank of America, and 20 fictitiously named Doe defendants. The Schmidts later substituted the Aragon HOA for one of the Doe defendants. Bank of America and the Aragon HOA are the only defendants that are parties to this appeal.

The Schmidts' complaint alleges that the Schmidt parcel " is subject to certain easement[ ] rights and restrictions" and that " the construction of [the Aragon project] has violated the Easement Rights and Restrictions, and has trespassed upon and/or created and maintained nuisances affecting [the Schmidt parcel.]" The trespasses and nuisances alleged by the Schmidts include: (1) improperly installed oil and sand separators, storm drains, fire lanes, fire gates, and tie backs in and along the easement; (2) an improperly constructed and maintained driveway apron and a similarly improper garage entryway along the easement; and (3) the lack of a road maintenance agreement for the roadway on the easement. The Schmidts sought damages for loss of reasonable use and enjoyment of their property, diminished market value of the property, and other compensatory and punitive damages. The Schmidts also demanded that the structures and improvements at issue be removed. Bank of America and the Aragon HOA filed answers generally denying the Schmidts' allegations and alleging various affirmative defenses.

After approximately 18 months of litigation, Bank of America filed a motion for summary judgment or, in the alternative, summary adjudication on the following grounds: (1) Bank of America does not own the structures and improvements at issue; (2) Bank of America does not maintain or control the structures and improvements at issue; (3) Bank of America, as an owner of individual condominium units, cannot be held liable for tort actions under former section 1365.9; (4) the structures and improvements at issue do not violate the reserved easement; and (5) Bank of America merely acted as a lender to Barratt on the Aragon project and cannot be held liable under section 3434.[4] The Schmidts opposed, arguing as follows: (1) Bank of America's ownership interests extend [168 Cal.Rptr.3d 248] beyond individual condominiums; (2) Bank of America's ownership and control of the structures and improvements at issue is unclear because of various security interests obtained by Bank of America over Barratt property; (3) Bank of America did not satisfy the requirements of former section 1365.9; (4) the structures and improvements at issue do violate the reserved easement; and (5) Bank of America did not establish it acted as a mere lender.

The Aragon HOA filed a motion for summary judgment or, in the alternative, summary adjudication on the ground that the structures and improvements at issue do not violate Parks's 1941 reserved easement. The Schmidts opposed, arguing that the reserved easement did not allow the structures and improvements as they were constructed.

The court granted summary judgment in favor of Bank of America and the Aragon HOA on all of the grounds asserted, with the exception of Bank of America's defense based on ownership of an individual condominium under former section 1365.9, which the court did not address. The court entered separate judgments accordingly.

DISCUSSION

I

" A defendant's motion for summary judgment should be granted if no triable issue exists as to any material fact and the defendant is entitled to a judgment as a matter of law. [Citation.] The burden of persuasion remains with the party moving for summary judgment. [Citation.] When the defendant moves for summary judgment, in those circumstances in which the plaintiff would have the burden of proof by a preponderance of the evidence, the defendant must present evidence that would preclude a reasonable trier of fact from finding that it was more likely than not that the material fact was true [citation], or the defendant must establish that an element of the claim cannot be established, by presenting evidence that the plaintiff ‘ does not possess and cannot reasonably obtain, needed evidence.’ " ( Kahn v. East Side Union High School Dist. (2003) 31 Cal.4th 990, 1002-1003, 4 Cal.Rptr.3d 103, 75 P.3d 30 ( Kahn ).) [5]

If the defendant " carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact." ( Aguilar, supra, 25 Cal.4th at p. 850, 107 Cal.Rptr.2d 841, 24 P.3d 493.) " The plaintiff ... may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific ...


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