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INSURANCE NOTES

Agreement To Settle By Homeowner Association's Insurer Was Insufficient To Bind The Association Under Enforcement Statute

10.11.2006
In Elnekave v. Via Dolce Homeowners Ass'n, __ Cal.App.4th __, 48 Cal.Rptr.3d 663 (2006), the Court reiterated that strict compliance with Code of Civil Procedure § 664.6 is necessary to enforce an oral settlement put on the record before the court, including agreement by each party or corporate officer of a party.

Plaintiffs Israel and Sara Elnekave owned a condominium unit that suffered mold damage from a water leak. The Elnekaves sued the Lees, who owned an adjoining unit, and their homeowners association ("HOA"), claiming that the Lees and the HOA were responsible for the damage.

At a mandatory settlement conference with the presiding judge, the attendees put the settlement on the record. Plaintiff Israel Elnekave was the only party that attended. A State Farm representative stated he was appearing for both the HOA and the Lees. An employee of a property management company hired by the HOA attended, stating she had authority to settle on behalf of the HOA.

The settlement put on the record called for payment by State Farm to the Elnekaves on behalf of the HOA and the Lees. In addition, the Elnekaves demanded assurances that the HOA would no longer "harass" them concerning the repairs.

Attempts to reduce the oral agreement to writing failed when the parties could not agree on the scope of the release regarding enforcement of the HOA's covenants, codes and restrictions ("CC&Rs") for any problems with the Elnekaves' repair work. The Elnekaves brought a motion to enforce the settlement pursuant to Code of Civil Procedure § 664.6. The HOA opposed the motion on the grounds that (1) it never intended to waive enforcement of the CC&Rs as to certain work done by the Elnekaves, and (2) the property management employee did not have authority to enter into the settlement on behalf of the HOA despite her statement to the contrary. The trial court found that a "good faith settlement" had been reached at the settlement conference, providing that the HOA waived enforcement actions for work done on the Elnekaves' unit up to the date of the settlement conference.

Code of Civil Procedure § 664.6 provides, in relevant part: "If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement." The term "parties to the litigation" has been strictly construed to mean the parties themselves, not their lawyers or other agents.

On appeal, the Elnekaves asserted the State Farm representative's agreement was sufficient to bind the HOA, relying on Fiege v. Cooke, 125 Cal.App.4th 1350 (2005). In Fiege, the court enforced a settlement of an auto accident claim entered into by the plaintiff and the defendants' insurer, but not the defendants themselves. The Fiege court held that Code of Civil Procedure § 664.6 had been satisfied because the defendant's insurance policy expressly gave the insurer the right to settle without the defendant's consent and because the settlement (which was within policy limits) did not prejudice the defendant's substantial rights.

In contrast, in Elnekave, there was no evidence the HOA had given State Farm the right to settle without the HOA's consent. In addition, the Court noted the settlement did prejudice the HOA's rights because the settlement limited its ability to enforce the CC&Rs for any noncompliance by the Elnekaves. The settlement involved more than the payment of money by the HOA's insurer.

As the HOA was not represented by a member of its corporate board or a corporate officer when the settlement was put on the record, the settlement was not binding on the HOA under Code of Civil Procedure § 664.6. Therefore, the judgment enforcing the settlement was reversed. Similarly, the Court noted that for purposes of the statute, Plaintiff Israel Elnekave's signature might be insufficient to bind his spouse.

The Court added there were alternative means to enforce the settlement other than Code of Civil Procedure § 664.6, including a summary judgment motion, a separate suit in equity, or amendment to the complaint. This was illustrated in a case decided two weeks after Elnekave. In Simmons v. Ghaderi, ___ Cal.Rptr.3d ___, 2006 WL 2787408 (2006), an oral settlement agreement reached in mediation was enforced following a fact-intensive bifurcated trial on a cause of action for breach of the oral settlement.

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