Eith v. Ketelhut, — Cal.Reptr.3d — (2018)
Homeowner bought home in 2003. In 2005 they planted a vineyard consisting of 600 plants on around .4 acres after obtaining approval of the Board’s Architectural Committee to their landscape plan that included the grape vines. The CC&R’s (Covenants Conditions and Restrictions) specifically prohibited that “No lot shall be used for any purpose (including any business or commercial activity) other than for a residence of one family…” The first wine harvest was in 2008 and the owner began selling the wine in 2009. In a good year he would produce 720 bottles of wine. Neighbors objected and when the Board did nothing, they filed suit seeking declaratory and injunctive relief claiming that the Board breached its fiduciary duty and to prohibit the owner from operating their business. At trial the owner admitted that “the sale of wine is a business,” that the vineyard “operates like a business” and that “this was a hobby.” The owner also testified that he filed IRS Schedule C for the vineyard, which is entitled “Profit or Loss of Business (Sole Proprietor).” Under the IRS rules you would not file Schedule C if the business was only a hobby.