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Marina Pacifica Homeowners Association v. Southern California Financial Corp.

California Court of Appeals, Second District, Eighth Division

April 24, 2017

MARINA PACIFICA HOMEOWNERS ASSOCIATION, Plaintiff and Appellant,
v.
SOUTHERN CALIFORNIA FINANCIAL CORPORATION, Defendant and Respondent.

         APPEAL from a judgment of the Superior Court of Los Angeles County Super. Ct. No. NC052700. Michael P. Vicencia, Judge. Affirmed.

          Locke Lord, Christopher J. Bakes, Daniel A. Solitro, Susan Kidwell; Morrison & Foerster and Miriam A. Vogel for Plaintiff and Appellant.

          Greenberg Traurig, Scott D. Bertzyk, Adam Siegler and Matthew R. Gershman for Defendant and Respondent.

          GRIMES, J.

         SUMMARY

         Since January 1, 2008, Civil Code sections 1098 and 1098.5 have governed the circumstances under which certain fee payments, imposed when real property is transferred, may or may not be collected.[1] In Marina Pacifica Homeowners Assn. v. Southern California Financial Corp. (2014) 232 Cal.App.4th 494 (Marina Pacifica I), this court determined that a monthly “assignment fee, ” payable by individual condominium unit owners to the developers of the condominium project, was properly collectible under those statutory provisions. The Supreme Court denied review. Our remittitur issued on April 22, 2015, remanding the case to the trial court for “further proceedings as necessary to enter an amended judgment consistent with [our] opinion, ” including “amended amounts due and owing for the assignment fee.” (Id. at p. 513.)

         Marina Pacifica Homeowners Association (plaintiff) now appeals from the trial court's judgment determining the amended amounts owing from unit owners to the developers' successor in interest, Southern California Financial Corporation (defendant), for the assignment fee. Plaintiff does not contend the trial court erred in its calculations, but contends we erred in our earlier construction of the statute, and should now correct that error and declare the assignment fee uncollectible. Our error is demonstrated, plaintiff maintains, by the Legislature's clarifying amendment of sections 1098 and 1098.5, effective January 1, 2016, an amendment intended to overrule our decision in Marina Pacifica I.

         We affirm the judgment. We need not decide whether we could properly reconsider our decision in Marina Pacifica I, because the amended statute and its legislative history demonstrate the Legislature intended in any event to permit the Marina Pacifica I assignment fees to remain in place.

         FACTS

         This is the fourth appeal in litigation over the assignment fee that began in 2006. Only two appeals are significant here: the appeal before us and our decision in Marina Pacifica I upholding the collectibility of the assignment fee.[2] The history of the dispute is described in detail in Marina Pacifica I, supra, 232 Cal.App.4th at pages 497-504. We summarize here the facts necessary to an understanding of our opinion in this appeal.

         When unit owners purchased their units in the Marina Pacifica complex, they bought an ownership interest in their individual units and a share of an undivided leasehold interest in the land on which the complex was built. That leasehold interest included the obligation to pay monthly rent to the landowner and an assignment fee to the developers. These two obligations were to continue until 2041. Both payments were to be nominal until 2006, when the rent and assignment fee would be recalculated so that together they would equal 10 percent (on an annual basis) of the fair market value of the land underlying the units. (Marina Pacifica I, supra, 232 Cal.App.4th at pp. 497-498.) Another recalculation would occur as of October 1, 2021. These assignment fee provisions were described in the unit lease, and an information sheet plaintiff gave to each purchaser of a unit in the complex stated that the fee would be readjusted in 2006 and 2021. The parties stipulated at trial 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.” (Id. at p. 499.)

         In 1999, plaintiff bought the land underlying the development and sold pro rata shares to the individual unit owners, thus terminating rent payments under the unit leases. The assignment fee, however, was separate and independent from the other lease provisions, and created a separate contractual obligation from the unit owner to the developers. (Marina Pacifica I, supra, 232 Cal.App.4th at pp. 499, 498.)

         In 2000, plaintiff bought out the assignment fee rights of two of the three development partners. But the remaining partner, William Lansdale, retained his 43.75 percent interest in those fees. In 2005, Mr. Lansdale and plaintiff began to litigate disputes over the appraisal process that would determine the fair market value of the property for purposes of readjustment of the assignment fee. (Marina Pacifica I, supra, 232 Cal.App.4th at p. 499.)

         In 2007, the Legislature enacted sections 1098 and 1098.5 to regulate “transfer fees.” A transfer fee was defined broadly to include fees imposed in any document affecting the transfer of an interest in real property. For transfer fees imposed before January 1, 2008, the recipient of the fee was required to record a separate document meeting specified requirements, including a title (“Payment of Transfer Fee Required”) and certain items of information about the fee. In order to continue collecting transfer fees on and after January 1, 2009, this separate document had to be recorded on or before December 31, 2008. (§ 1098.5, subd. (a).)

         There were, however, nine exceptions to the definition of a transfer fee. One of the fees not included in the statutory definition was “[a]ny fee reflected in a document recorded against the property on or before December 31, 2007, that is separate and apart from any covenants, conditions, and restrictions, and that substantially complies with subdivision (a) of Section 1098.5 [recited just above] by providing a prospective transferee notice” that payment of a transfer fee was required, the amount or method of calculation of the fee and several other items. (Former § 1098, subd. (i).)

         In January 2008, Mr. Lansdale transferred his right to the assignment fees to defendant. By December 2008, the appraisal litigation had been concluded, an arbitration had been held, and the fair market value of the property for purposes of calculating the assignment fee was set at $60, 615, 500 (as of October 1, 2006). Defendant then began billing the unit owners for their respective shares of the readjusted assignment fee. (Marina Pacifica I, supra, 232 Cal.App.4th at p. 500.) Defendant did not record the separate document described in section 1098.5.

         Plaintiff instructed unit owners not to pay the assignment fee bills defendant sent, and in March 2009 plaintiff sued defendant. Along with other allegations, plaintiff asserted the assignment fee was a transfer fee as defined by section 1098, and could not be collected after December 31, 2008, because defendant did not comply with the recording requirements in section 1098.5. The trial court agreed, and also held that the fees imposed before that date should have been calculated under a four-percent formula advocated by plaintiff, rather than the higher 10-percent formula sought by defendant.

         Both parties appealed. In Marina Pacifica I, we concludedthe assignment fee came within the general definition of a transfer fee as described in the first sentence of section 1098, but was excluded from that definition by the “substantial compliance” exception described in then-section 1098, subdivision (i). (Marina Pacifica I, supra, 232 Cal.App.4th at p. 509.) We observed that the unit lease contained all the required information and, while the unit lease itself was not recorded, numerous documents that were recorded against the property incorporated the unit lease by reference. (Id. at p. 510.) These included lease assignments and resale assignments that contained provisions in which the unit owners promised to pay the assignment fee set forth in paragraph 4 of the unit lease, and acknowledged they had received and reviewed the unit lease. (Id. at pp. 511-512.) We observed the evidence showed that “far from being hidden, the assignment fee was clearly disclosed to purchasers, ” who had both constructive notice and actual notice of the assignment fee. (Id. at p. 512.)

         Accordingly, we reversed the trial court's judgment to the extent it held the assignment fee was an uncollectible transfer fee after December 31, 2008. (We agreed with the trial court that the four percent formulation should have been used to calculate the fees.) As already noted, we remanded the case to the trial court for “further proceedings as necessary to enter an amended judgment consistent with [our] opinion, ” including “amended amounts due and owing for the assignment fee.” (Marina Pacifica I, supra, 232 Cal.App.4th at p. 513.)

         Our opinion in Marina Pacifica I was filed December 16, 2014. Plaintiff did not seek rehearing in this court, but petitioned for review in the California Supreme Court. The Supreme Court denied the petition on March 11, 2015, and the remittitur issued on April 22, 2015.

         During 2015, legislation was enacted to amend section 1098, effective January 1, 2016. Among the changes were the addition of a new subdivision (b). Subdivision (b) provides, with respect to the substantial compliance exception to the definition of a transfer fee, that the specified information “shall be set forth in a single document and shall not be incorporated by reference from any other document.” (§ 1098, subd. (b).) The bill as enacted included a legislative finding that “the addition of subdivision (b) to Section 1098... and [other specified amendments]... made by this act are clarifying and declaratory of existing law.” (Stats. 2015, ch. 634.)

         The amendments as enacted also added a new subparagraph to the substantial compliance exception. (§ 1098, subd. (a)(9)(B).) We will refer to it as ...


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