Le Parc had sued its original developers, claiming poor original construction. It assessed the owners to fund the suit. It received millions of dollars from the suit on behalf of the owners.

Le Parc now finds itself on the opposite side -- liable for a $7 million judgment from a uniquely different suit.

So, how did Le Parc manage to suffer this self-inflicted wound and how does this judgment get paid?

In January 1994, the Northridge earthquake rumbled through the Southland. Le Parc suffered extensive damage. On behalf of its members, Le Parc contracted with ZM Corporation for earthquake repairs.

The source of the repair funds was a Farmers Insurance earthquake policy. The contract, negotiated by lawyers for Le Parc, obligated ZM to do all the repair work for the amount of the insurance plus the million-dollar deductible that was assessed to the owners.

Farmers valued the repairs at only $2.2 million. ZM, adjusting the loss on behalf of Le Parc, was able to increase the scope of work under the policy to more than $6 million. Thanks to ZM, the owners would get essentially brand-new units and exteriors for the same deductible.

ZM was praised by both Farmers and Le Parc's president for the quality of the completed work on this huge project, in spite of great obstacles, including working around destructive testing by Le Parc's lawyers for the construction defect lawsuit. Not all the owners had paid their share of the insurance deductible, which forced ZM to hopscotch around the project rather than work building by building, as originally planned.

Additionally, does anyone remember the rains in the winter of 1994-95?

Coordinating owner move-outs, arranging contents protection, scheduling subcontractors in more than seven disciplines and sequencing the work were massive tasks.

The insurance funds to pay ZM were paid directly to the Le Parc board. Le Parc elected a new board in 1995. Suddenly, things became malevolent. Le Parc tried to change the deal. Binding arbitration under the contract was triggered.

After a trial, an appeal and 84 days of arbitration hearings in which Le Parc brought a cross claim for more than $1 million, ZM was awarded $6,639,187.06 in compensatory damages and costs (no punitive damages were awarded). Le Parc got zero on its cross-claim.

The arbitrator, chosen by both sides, found that Le Parc had used the insurance money due ZM for other "expenses," breached the contract, tried to intercept ZM's profit margin, slandered ZM's reputation, interfered with ZM's economic interests and destroyed both the company and its professional standing.

More than $8 million moved through Le Parc from its defect suit, the earthquake funds and from a suit against its former attorneys. The owners got substantially new units, roofs and exteriors. ZM was innocent of wrongdoing, but was destroyed.

So, how does the judgment get paid?

There is widespread ignorance, confusion and false information circulating among homeowners and others regarding the obligations of the owners. The owners are not personally liable on the judgment itself, but they are liable up to the value of their ownership interest because of the assessment regime, and they may be liable for any special assessment.

The regular assessments, as assets of the association, can be garnished to pay down the judgment.

As a homeowners association, Le Parc is a "servitude regime" where each unit owner has an undivided ownership interest in the common areas or facilities and in which each owner of a separate residence is also a mandatory member of the homeowners association.

The financial obligations and responsibilities of community associations are funded exclusively by the community's residents, who are required to pay regular and special assessments as needed to meet association obligations and costs.

Members are assessed so that sufficient funds are available to pay obligations, to operate on a day-to-day basis, to pay for employee and other similar expenses and to pay for extraordinary expenses.

Such expenses include liability judgments.

As a "mini-government," the association, on behalf of its members, is the contract authority for utility services, road maintenance, street and common-area lighting, building repairs and refuse removal. It can sue and it can be sued.

All of these functions are financed through assessments or "taxes" levied upon members of the community. Additionally, the assessment obligation of members is independent of the association's actual performance of services -- a strange concept, but true.

A common-interest community owner owes assessments simply by owning property in the community, much like the owner of land in a municipality owes real estate taxes -- unconditionally.

The law also provides that a court can order special assessments for valid obligations.

It would be manifestly inequitable to both accept the contractual benefits (rebuilt units and exteriors) and also repudiate the transaction and destroy a business reputation without being responsible for the financial consequences. If you accept the benefits, you must also take the burdens.

Le Parc refuses to assess the owners for the judgment and seems to always choose litigation over resolution. So be it.

Lessons (hopefully) learned? Honor your contracts, do none harm, secure adequate insurance, get informed, professional advice before taking action and always request copies of the current minutes of your board's meetings.

-- Glenn J. Campbell is counsel for ZM Corporation and is a trial lawyer, specializing in the fields of contract, employment and securities law. He is a partner in Lowthorp, Richards, McMillan, Miller, Conway and Templeman in Oxnard.