Homeowners associations in the retirement community of Leisure World acted legally when they spent half a million dollars of homeowners assessments on an initiative campaign to halt a proposed airport, the Fourth District Court of Appeal has ruled.
The court cleared the political activity of the Golden Rain Foundation of Laguna Hills and three of its member homeowner associations. The groups provided $542,000 for Orange County's Measure S, a 1996 ballot initiative aimed at blocking development of an airport at El Toro Marine Corps base, which is near Leisure World. (Measure S failed. But, in March, Orange County voters approved Measure F, which requires a two-thirds vote of the public for the proposed airport to go forward. Various homeowners associations also contributed to the pro-Measure F campaign.)
The lawsuit was filed by members of the homeowners associations, although the Orange County Register reported that developer George Argyros, the proposed airport's prime private supporter, was behind the suit. The suit claimed that the associations did not have the power to make the political contributions, and that the donations were illegal and violated members' constitutional rights of free speech and association.
Orange County C. Robert Jameson ruled for the homeowners associations, and a unanimous three-judge appellate panel upheld the ruling. In the published portion of its opinion, the court held that the associations are corporations that can use the "special litigation committee" defense. In this case, after the lawsuit was filed, each association created its own special litigation committee. Each committee was composed of members of the board of directors who had not become members until after the lawsuit was filed. The committees retained lawyers and conducted thorough reviews before concluding that the lawsuit was not in the best interest of each association. Thus, the actions of the homeowners associations boards of directors were protected by "the business judgement rule," the court held. The special litigation committee defense is intended "to further the fundamental principle that those best suited to make decisions for a corporation — including the decision to file suit on its behalf — are its directors, not its stockholders or the courts," Justice Betty Ann Richli wrote.
In the unpublished portions of the opinion, the court ruled that the associations had the authority to make the contributions necessary to preserve Leisure World residents' lifestyle. The court noted, "A carefully designed professional survey revealed that 91.3% of Leisure World residents opposed the airport conversion." And the court held that the contributions did not violate anyone's constitutional rights.
The Case:
Warren T. Finley v. Superior Court, No. E024743, 00 C.D.O.S. 4077, 2000 Daily Journal D.A.R. 5439, filed Mary 23, 2000.
The Lawyers:
For Finley: Daniel Livingston and Alan Ross, Payne & Fears, (949) 851-1100.
For the homeowners associations: William R. Hart and Robert Mulvihill, Hart, King & Coldren, (714) 432-8700.
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