An Orange County Superior Court judge recently ruled that Leisure World Mutual 5 is a homeowners association as defined by the Davis-Stirling Act.
Davis-Stirling is a California law that regulates homeowners associations.
It is not known if Mutual 5 will appeal the ruling.
The superior court, in a two-page ruling, simply said that Seal Beach Leisure World Mutual 5 is an “association” as defined by the Davis-Stirling Act.
A superior court ruling does not establish precedent in law, meaning other superior courts are not obligated to follow the ruling.
However, the question of whether Davis-Stirling covers the mutual benefit corporations that make up Leisure World has been debated since the Golden-Rain Foundation lost a legal battle over the same issue.
Seal Beach Mayor Michael Levitt, an attorney and former president of Mutual 4, has long maintained that Davis-Stirling does not apply to Leisure World’s mutuals.
Neither Levitt nor Mutual 4 were part of the court case.
“I think that the court was wrong,” Levitt said.
According to Levitt, one of the articles of Davis-Stirling says that a general law corporation that issues stock is not governed by Davis-Stirling.
Long-time Leisure World critic Dave Lyon strongly disagreed.
“Incredibly, several directors and former directors of the 15 stock-cooperative mutuals of Leisure World continue to believe that a literal interpretation of the Civil Code Section 1351 definition of an ‘association’ as a ‘non-profit corporation’ exempts the Seal Beach mutuals because they were incorporated prior to 1985 as ‘general law’ corporations,” Lyon said.
He said that because Mutual 5 has been ruled an “association,” the directors of the remaining 14 mutuals would find that they are subject to the Davis-Stirling Act.
“Since Davis-Stirling is essentially a consumer protection act for the benefit of homeowners of deed restricted property in common-interest developments, all shareholders of Leisure World mutuals can now rely on enjoying the legal rights afforded by provisions of the act,” Lyon said.
Leisure World resident Carol Franz believed the ruling could have an impact on how mutuals invest their monies. This ruling is important because, since the California Appellate Court ruling that the Golden Rain Foundation is an association under the Davis-Stirling Act, most if not all of the Mutual Corporations in Leisure World are saying through their attorneys that the Mutual Corporations are NOT.,” Franz said.
“One of the very important D-S laws state that the reserves MUST be kept in FDIC insured instruments. Since 2004 when all of the mortgages were paid off in advance (to get out from under FHA’s rules), all of the Mutual Corporations and the GRF have been putting our reserves in municipal bonds,” Franz said.
“So if one Mutual Corporation (Mutual No. Five) has been found by the court to be an association and subject to the Davis-Stirling Common Interest Development Act, perhaps all of the mutual corporation(s) will have to stipulate to this as well. This would be great news to many, many shareholder/members with the concerns regarding the reserves as well as many of the safe guards that are provided by the Act. This act not only holds the Mutual boards accountable, but also helps to give options to remedy many situations that involve the shareholder/members as well,” Franz said.
History repeats itself
According to Lyon, some Leisure World mutual directors argue that Davis-Stirling doesn’t apply because they don’t want shareholders to be able to file small claims lawsuits against mutual boards that refused to provide financial information
It was just such a disagreement that ultimately led to the California appellate court case Golden Rain Foundation versus Carol Franz.
Franz and some other Leisure World residents sued Golden Rain 10 times in small claims court after being denied requests to see the foundation’s financial records.
The litigants won all 10 cases, which cost Golden Rain $10,000 in judgments.
Golden Rain sued the litigants, arguing that the foundation was a non-profit management company for the mutuals.
A superior court judge made repeated attempts to get the case out of his court, but both sides insisted on having a ruling.
Golden Rain lost. Golden Rain appealed the decision. The appellate court upheld the superior court’s decision.
The California Supreme Court refused to hear Golden Rain’s appeal.
That meant the appellate court’s ruling was the law of California.
However, the question of whether Davis-Stirling applied to the mutuals that make up Leisure World was left for another court case.
