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Marina Pacifica Homeowners Association v. Southern California Financial Corp.

California Court of Appeals, Second District, Eighth Division

December 16, 2014

SOUTHERN CALIFORNIA FINANCIAL CORPORATION, Defendant and Appellant, MARIANTHI LANSDALE et al., Defendants and Respondents. 12 12 12


APPEAL from a judgment of the Superior Court of Los Angeles County No. NC052700, Patrick T. Madden, Judge.

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[Copyrighted Material Omitted]

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Locke Lord, Christopher J. Bakes and Daniel A. Solitro for Plaintiff and Appellant.

June Babiracki Barlow and Neil Kalin for California Association of Realtors as Amicus Curiae on behalf of Plaintiff and Appellant.

Greenberg Traurig, Scott D. Bertzyk, Adam Siegler and Matthew R. Gershman for Defendant and Appellant and Defendants and Respondents.

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This litigation between plaintiff Marina Pacifica Homeowners Association (the HOA) and defendants William Lansdale[1] and Southern California Financial Corporation (SCFC) concerns the Marina Pacifica Condominium Project (Marina Pacifica) in Long Beach, California. SCFC appeals, and the HOA cross-appeals, from the judgment after a bench trial. The parties’ dispute centers around a monthly fee the residents of Marina Pacifica pay to the developers of the condominiums, or the developers’ successor in interest, called the “assignment fee.” We affirm in part and reverse in part.


1. Marina Pacifica’s Development and Pertinent Transactions

Marina Pacifica is a 570-unit complex on the Long Beach waterfront. At the time of Marina Pacifica’s construction in the early 1970’s, the McGrath Trust owned the land on which the complex was built. Lansdale obtained an option on a ground lease from the McGrath Trust. He contributed the ground lease option to Marina Pacifica Limited Partnership (the limited partnership). The limited partners in this entity were Lansdale, Abe Reider, and William Dawson. The limited partnership exercised the ground lease option to develop and construct the Marina Pacifica complex.

The ground lease was subdivided into 570 identical leases, one for each condominium unit, entitled “Condominium Common Area and Unit Space Lease” (the unit lease). The McGrath Trust was the lessor and the limited partnership was the lessee under each unit lease. The unit leases were for a term of 68 years and would expire on September 30, 2041. When the limited partnership sold a condominium unit, it and the purchaser executed a standard document assigning the unit lease to the purchaser (the lease assignment). If unit owners sold their units, the seller and the subsequent purchaser executed a standard document assigning the seller’s rights, interests, and obligations under the unit lease to the subsequent purchaser (resale assignment).

Thus, unit owners purchased an ownership interest in their condominium units plus an undivided leasehold interest in the land underlying the complex. The unit leases required owners to make two monthly payments: rent payable

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to the landowner (the McGrath Trust), and an “assignment fee” payable to the developer (the limited partnership). As we explain below, both of these payments were to be nominal from the early 1970’s to 2006. In 2006, however, the rent and assignment fee would be recalculated so that together, they would equal 10 percent of the value of the land underlying the units.


Monthly rent was $15 from June 1973 to September 2006. Under paragraph 3. (b) of the unit lease, from October 2006 to September 2021, monthly rent would become the greater of (1) $25 or (2) 1/12th of 6 percent of the fair market value of the leasehold premises, as of October 1, 2006.

Assignment Fee:

“[F]or and in consideration of” the limited partnership’s assignment of its interest in the leasehold estate to unit owners, the unit owners and each of their successors and assigns would pay to the limited partnership “a continuing assignment fee” under paragraph 4 of the unit lease. Until September 2006, the assignment fee was $13 to $35 depending on the unit and was subject to cost of living increases every five years. From October 2006 to September 2021, the monthly assignment fee would “be equal to the amount, if any, by which one-twelfth (1/12) of ten percent (10%) of the fair market value of the leasehold premises on October 1, 2006 exceed[ed] the monthly rent payable under part (b) of Paragraph 3” of the unit lease.[2]

The unit lease stated the provisions of the assignment fee paragraph were “intended by the parties hereto to be separate and independent from all remaining provisions” of the unit lease, and would “constitute, and be construed as creating, a separate contractual obligation of the Assignee of [the limited partnership] and all of the successors and assigns of said assignee....”

A copy of the unit lease itself was not recorded. But in May 1973, the limited partnership caused a “Memorandum of Condominium Common Area and Unit Space Leases” to be recorded with the Los Angeles County Recorder’s Office. This memorandum was recorded against the entire Marina Pacifica property and incorporated the unit leases by reference. Additionally, each lease assignment or resale assignment was recorded against its respective condominium unit. The lease assignments and resale assignments also incorporated the unit leases by reference.

In connection with the purchase of any unit, the HOA gave each purchaser a packet of documents. Among other things, the packet contained sample

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copies of the unit lease and the lease assignment and an “information sheet” stating the purchaser’s monthly rent and assignment fee would be readjusted on October 1, 2006, and October 1, 2021, in accordance with the fair market value of the leasehold premises on those dates. The information sheet also directed purchasers to the relevant paragraphs and page numbers of the unit lease for the rent and assignment fee. The parties to this lawsuit stipulated that each purchaser of a Marina Pacifica unit had notice of the unit lease and its contents, including the specific paragraph setting forth the assignment fee.

Unit owners originally paid the assignment fee to the limited partnership. When the limited partnership completed developing and selling all the units, the partners dissolved the entity. Upon dissolution, the limited partners each received a share of the assignment fee—Lansdale received 43.75 percent, Dawson received 37.75 percent, and Reider received 18.5 percent.

In December 1999, the HOA purchased the land underlying Marina Pacifica from the McGrath Trust for $17 million. Each unit owner then paid the HOA for the owner’s pro rata share of the land. As a result of this purchase, the unit owners no longer pay any rent under the unit lease.

From 1995 to 2005, the HOA attempted to negotiate with Lansdale, Dawson, and Reider to buy their interests in the assignment fee. The HOA wanted to eliminate the obligation to pay the assignment fee before the October 2006 adjustment. The HOA successfully negotiated with Dawson and Reider. In 2000, it purchased their interests (collectively, 56.25 percent) for $5 million. It was unable to reach an agreement with Lansdale to buy his 43.75 percent interest in the assignment fee.

2. Appraisal Litigation

As discussed, the adjustments of the rent and assignment fee required the parties to determine the fair market value of the leasehold premises. The unit lease provided that the lessor—originally, the McGrath Trust—and the HOA would each select an appraiser, and their two appraisers would agree on a third appraiser to render an appraisal of the fair market value. After the HOA purchased the land from the McGrath Trust, it took the position that the interests of the lessor and lessee under the unit lease had merged, and it thus had the right to select an appraiser unilaterally for purposes of calculating the assignment fee. Lansdale disagreed and asserted he had a right to participate in the appraisal process by selecting one of the two initial appraisers. In 2005, Lansdale and the HOA filed dueling pleadings seeking declaratory relief to resolve this dispute (appraisal litigation).

The appraisal litigation went to trial. The HOA stipulated for purposes of the trial that Lansdale was the sole remaining assignee of the limited

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partnership and had “the sole right to collect his portion of the monthly Assignment Fees.” Moreover, it stipulated “[t]he Assignment fee owned by Lansdale remains payable and Lansdale is the owner of 43.75% of the Assignment fee” (capitalization omitted).

In the court’s statement of decision in the appraisal litigation, the court noted: “The monthly ‘Assignment Fee’ is a separate contractual obligation owed to [Lansdale] over the term of the Lease. The Assignment Fee is binding on the original purchasers and any subsequent purchasers in the Marina Pacifica condominium project.”

The court found the interests of the lessor and lessee under the unit lease had merged and “the leasehold interest ha[d] been annihilated and no longer exist[ed].” There was no longer any lessor to appoint an appraiser, and therefore the appraiser-appointment method described in the unit lease could not be followed. The court held it would be inequitable and unconscionable to permit only one party to appoint the appraiser, insofar as the original parties to the unit lease agreed the fair market value of the leasehold premises would be determined by an independent appraiser. The court determined it should appoint an independent appraiser pursuant to Code of Civil Procedure Section 1281.6 (providing a method for appointing an arbitrator, if the agreed method fails or for any reason cannot be followed).

On appeal, Division Two of this court affirmed the judgment in the appraisal litigation. (Lansdale v. Marina Pacifica Homeowners Association (Aug. 14, 2007, B192520) [nonpub. opn].)

Lansdale and the HOA participated in arbitration to implement the terms of the court’s judgment. The court entered an order confirming the arbitrator’s award, holding that, “[a]s of October 1, 2006, the fair market value of the property used for purpose of calculating the Assignment Fee due under the Lease... is the sum of $60, 615, 500.”[3]

3. 2008 Assignment Fee Billing and Commencement of the Instant Action

Lansdale assigned his 43.75 percent interest in the assignment fee to codefendant SCFC in January 2008. After the court affirmed the arbitrator’s award in the appraisal litigation, SCFC began billing the unit ...

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