Ojai Valley News Blog

Sanitary District seeks to recoup legal costs from Arbolada residents

By Daryl Kelley

Eighteen homeowners in the lower Arbolada have been threatened with a lawsuit if they don’t pay $93,000 to reimburse the Ojai Valley Sanitary District for legal fees incurred during a lawsuit filed by a construction worker who was injured as the homeowners connected to the local sewer.

The Sanitary District and the co-defendant homeowners won their case against the worker last week, but lawyers for the Sanitary District’s insurance group promptly notified the homeowners that they still had to pay the group’s legal fees by Sept. 1, or they’d be sued for the money.

The issue surprised sanitary board directors this week, as angry homeowners barraged them with complaints during a meeting Monday evening.

They told the district that they’d invested about $35,000 each — or $600,000 total —- to extend the sewer system to El Paseo, Sierra and Cuyama roads, eliminating septic tanks that reeked when overflowing during wet winters and fouled groundwater already heavy in nitrates because of the Ojai Valley’s reliance on septic systems.

Then after a three-month construction project in 2006 they signed over ownership of the sewer extension to the Sanitary District in 2007.

(Ojai Valley News editor and publisher Bret Bradigan is a co-owner of one of the 18 homes, but he did not participate in the discussion Monday.)

One homeowner, cinematographer Jim McEachen, told the board:

“Please remind yourself, that the people you are threatening to sue are the neighbor-investors that provided a significantly valuable asset to both the district and the community. If there was ever a case that proved the old adage that ‘no good deed goes unpunished’ this is it.”

Board members said they hadn’t heard of the insurer’s threatening letter until shortly before the meeting. But they were cautioned by their legal counsel to remain mum about the issue, letting attorneys for the district’s self-insurance group — a large group of sanitary districts throughout California — do the talking for the district.

Later in the week, however, district counsel Mark Zirbel said in an interview that the Sanitary District would ask that no suit be filed against the homeowners for at least a month, until the district, the Executive Committee of its insurance pool and a third-party administrator talked about the unusual nature of this dispute.

“There will be an intense review by all parties,” Zirbel said. “We’re all getting up to speed on this. I can see a lot of issues that need to be considered. We have to all get together and decide what the next step is going to be.”

One Ojai sanitary board member, Russ Baggerly, is a member of the executive committee of the statewide insurance pool, and Baggerly told Zirbel on Wednesday that he intended to bring up the issue there.

“Russ is going to ask for a meeting of the Executive Committee to see if this is something the insurance pool wants to press (with the homeowners),” Zirbel said.

Zirbel said the lower Arbolada situation is very unusual, perhaps unique, because the developers of the sewer extension were existing homeowners and not a residential or commercial developer.

If a commercial developer had incurred legal costs because of an injury on the construction site there would be no question that the developer would pay the legal fees, he said. But, in this case, the homeowners moved the project forward.

“We’re glad to have the project completed,” Zirbel said, “but our insuring agencies have different concerns. I think it’s good they’re now taking a close look at this.”

From a strictly legal standpoint, Sanitary District general manager John Correa said the homeowners are liable for the $93,000 in legal fees incurred by the insurance pool, and for any additional charges that could develop if the injured worker asks the court for a reconsideration of his case, or appeals his loss in Superior Court.

The contract the homeowners signed with the district clearly holds the homeowners responsible for expenses incurred by the district, if any, from the private construction project, he said.

“My board had no role in this except in approving the contract with the Lower Arbolada Sewer Association (the homeowners),” Correa said. “We tried to accommodate them. We entered into agreements with them, and one of the procedures was that they release us from any liability and that they indemnify us. That means that they would protect us.”

Correa said he understands the homeowners’ concerns about current and possible additional legal fees.

“But the other side is that if we had a developer come in building 18 houses and he wanted to extend the sewer to them, we’d do exactly the same thing,” he said. “Everybody would understand that the developer was responsible. What’s different here is that the developer is the homeowners association. But they aren’t developers, so they don’t like this. I don’t think something like this has every happened before (involving our insurance pool.)”

Some homeowners said they’re not sure they are obligated to pay the Sanitary District’s legal fees in the injury case. But their homeowners insurance companies will not foot that bill to press that point, they’ve been informed. So they’ve contacted private attorneys to see what step to take next.

“It’s crazy, because we thought it was just the right thing to do,” McEachen said in an interview. “We should be on sewer and off septic because the nitrate levels are so high in the groundwater.”

So, in 2006, when he and other homeowners were contacted by the Ojai Valley School, which owns seven of the 18 houses, they agreed to also support the project, McEachen said.

But when a contract was finally presented to the homeowners, they were told they needed to sign right away because the project was set to begin the next week, he said.

“We were asked to sign this contract upon presentation,” McEachen said in comments to the board, “so as not to slow down the process as it was due to break ground in a matter of days.”

Indeed, there was only a single draft of the contract and it was passed around from homeowner to homeowner as if it were a petition and not a legally binding document, he said.

He said he personally asked about the indemnification clause that protected the Sanitary District from liability.

“I was assured that the indemnification only applied to warranting the system for the proscribed period of time and any litigation that any one of the participating homeowners might originate against the district,” McEachen said in his statement.

McEachen said he was also not aware that the Sanitary District would monitor construction, which he said opened it up to be sued by the injured worker. The district said it had no official presence on the work site.

McEachen was one of several homeowner speakers at Monday’s hearing.

Homeowner Kenneth Lakes noted “the ironic nature” of the situation: that homeowners seeking to do right are now subject to pay the district’s legal fees.

“They’re asking us to pay their fees so they can sue us,” he said in an interview. “It’s become a real mess. And it was a good thing to do. We’d been here 35 years and twice the Sanitary District tried to get approval for this, but the homeowners said no because of the cost. Now we pay our $35,000 (each), and we end up with this.”