BILL ANALYSIS Ó AB 634 Page 1 Date of Hearing: May 5, 2015 ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION Mike Gatto, Chair AB 634 (Calderon) - As Amended April 28, 2015 SUBJECT: Vacation ownership and time-shares: owners list SUMMARY: Provides a process for a time-share property owner to communicate with other owners within a time-share association on matters related to legitimate association business, without requiring the release of the owner list. Specifically, this bill: 1)Prohibits a time-share association from publishing a list of owners or providing a list of it to any time-share interest owner or to any third party, or use or sell the list for commercial purposes, except to accomplish legitimate association business, as specified. 2)Requires the board of administration or managing entity of a time-share owner's association to determine whether a request from an owner to communicate by mail with the membership of the association pertains to legitimate association business. 3)Requires the board or managing entity to make the requested AB 634 Page 2 mailing within 30 days of receipt of the request and payment for actual costs if the mailing pertains to legitimate association business. 4)Requires the board or managing entity to notify the requesting owner in writing with reasons for rejection if the board or managing entity determines that the requested mailing will not advance legitimate association business. 5)Requires the requesting owner to pay the association in advance for the actual costs of the mailing. 6)Requires the association to make a good faith effort to minimize the costs of the mailing, including the use of a less expensive delivery method with respect to those owners who have previously consented to such methods. 7)Where the requested mailing is a proxy solicitation related to a board recall or management discharge, and the board of administration or managing entity does not complete the requested mailing within 30 days after receipt and payment, the requesting owner may petition a local court on an expedited basis to order the mailing. 8)Authorizes the court to order the board or managing entity to pay the owner's costs, including attorney's fees, unless the board or the managing entity can prove it refused to distribute the materials in good faith because of reasonable doubt about whether the requested mailing pertained to AB 634 Page 3 legitimate association business. 9)Reiterates that proxy solicitations must comply with the provisions of this bill and existing law. 10)Prohibits the board or managing entity from refusing to distribute a communication requested by an owner if the requested mailing would address legitimate association business. 11)Defines "legitimate association business" as including, but not limited to, a proxy solicitation for any purpose, which includes the recall of one or more of the board members elected by the owners, the discharge of a manager or management entity, or disposition of time-share interests acquired by the association. 12)Declares that provisions relating to the right of inspection of records and reports of nonprofit mutual benefit corporations do not apply to time-share associations regulated under the Vacation Ownership and Time-share Act of 2004 (VOTA). 13)Makes findings and declarations related to the need to provide privacy protections for time-share association membership lists. 14)Makes other technical or non-substantive changes. AB 634 Page 4 EXISTING LAW: 1)Requires, pursuant to the VOTA, all records of a time-share plan maintained by a time-share association to be made available for inspection and copying by any member for a purpose reasonably related to membership in the association. (Business and Professions Code (BPC) Sections 11210-11288). 2)Requires the time-share association to maintain among its records a complete list of the names and addresses of all owners of time-share interests in the time-share plan, as specified, and prohibits an association from publishing the owners list or providing a copy of it to any time-share interest owner or to any third party or using or selling the list for commercial purposes, except as provided in the time-share instruments. (BPC 11273(e)) 3)Authorizes a member of a nonprofit mutual benefit corporation to inspect and copy member contact records within five days of request, or obtain a copy of member contact records within ten days of request, for a purpose reasonably related to such person's interest as a member, unless the corporation provides a reasonable alternative. (Corporations Code (CORP) Section 8330(a)) 4)Requires that a requesting member tender a reasonable charge if the member requests a list of the information. (CORP 8330 (a)) 5)Permits the corporation to deny the member access to the list AB 634 Page 5 where it provides a reasonable alternative, or if the corporation reasonably believes that the information will be used for another purpose unrelated to the requesting member's interest as a member. (CORP 8330 (b)) 6)Authorizes a corporation to offer a requesting member any alternative method of achieving his or her purpose without providing access to or a copy of the membership list so long as the alternative method reasonably and in a timely manner accomplishes the requesting member's proper purpose. (CORP 8330 (c)) FISCAL EFFECT: None. This bill is keyed nonfiscal by the Legislative Counsel. COMMENTS: 1)Purpose of this bill . This bill is intended to protect time-share owner privacy by creating a process for owners to communicate with one another about legitimate association business without requiring the association to release the owner list, and exempting time-share associations from existing requirements for the sharing of member lists that apply to certain types of nonprofits. This bill is sponsored by the American Resort Development Association (ARDA) and its related resort owner coalition. 2)Author's statement . According to the author, the existing law regulating time-share properties "was written to protect the privacy of the names and addresses of the owners of time-share interests within time-share plans, such that the owner's association of a time-share plan could not be required to AB 634 Page 6 publish or provide a copy of the list of owners to any time-share interest owner or third party or use or sell the list for commercial purposes." "In 2010, the Court of Appeals of the State of California, Third Appellate District, held that California Corporations Code Section 8330 - not the time-share law - applies to those time-share associations that are organized as non-profit corporations. Since many of the time-share associations are organized as non-profit corporations, the court decision meant that those time-share owners lost the privacy rights that had been accorded them under the time-share law. Section 8330 law grants members of a nonprofit mutual benefit corporation the right to inspect and copy, or obtain for a reasonable charge, the record of names, address, and voting rights of the members of the corporation upon 10 days written notice, provided it is for a purpose reasonably related to the person's interest as a member. "As a result of the ruling any time-share owner (belonging to an association organized as a nonprofit mutual benefit corporation) can easily get their association's lists and sell those lists to any third party. The fact is, time-share associations frequently have a membership list that can easily be in excess of ten thousand members. Such a list on the open market would easily be of substantial value, particularly to unscrupulous parties who prey upon time-share owners. Specifically, these lists end up in the hands of companies that claim they can sell time-share units. Typically they demand an up-front fee and then usually fail to sell the time-share. In addition, dissemination of such a list can expose personally identifiable information of owners to third parties, which information might not otherwise be publically available (keeping in mind that a timeshare is not an owner's primary residence, and the information provided in many cases is not public information)." 3)The time-share property industry. Time-share ownership AB 634 Page 7 generally describes a system where owners hold a legal right to occupy a property for short periods of time each year (and in some cases, a property ownership right as well), usually for recreational purposes. This is in contrast to more traditional "common interest developments," like condominiums and residential subdivisions, that are usually occupied year-round and more akin to traditional home ownership. The regulation of time-shares in California is said to have begun in earnest in 1981, when the industry was widely perceived as being prone to high-pressure sales tactics and rampant consumer fraud (an era now facetiously referred to as the "crime-share" days). Restrictions on time-shares were built into the Subdivided Lands Law that regulated common interest developments, although in 2004 the Legislature passed VOTA, which consolidated and revised the various relevant provisions into a single chapter. As a form of real estate, time-share advertising, disclosure, sales and management are regulated by the Bureau of Real Estate within the Department of Consumer Affairs. Time-share interests in any time-share project, also known as a time-share plan, to be sold in California are subject to regulation under the VOTA. 4)Voting rights, nonprofit associations, and time-share owners . As noted in the author's statement above, a 2010 court case in California (Worldmark v. Wyndham Resort Development Corporation) held in part that time-shares which are organized as nonprofit corporations must abide by the general requirements of the law pertaining to a certain type of nonprofits - despite the fact that some of those requirements regarding the release of owners' contact information appeared to conflict with the existing time-share law. This particular corporate form, the mutual-benefit nonprofit corporation, is one organized for a mission that benefits only a select group of people, such as a union, local chamber of AB 634 Page 8 commerce or a homeowner's association, but shares the same underlying structure as the more well-known public-benefit corporation. Under existing law, these corporations are generally required to allow members to inspect and copy member contact records within five days of request, unless a reasonable and timely alternative is provided. Access to the list can be denied if the corporation reasonably believes that the information will be used for a purpose unrelated to the requesting member's interest as a member. Violations are remedied by damages, disgorgement of profits, court costs and attorney's fees, as well as punitive damages for fraudulent or malicious violations. By comparison, the existing time-share law simply says that records shall generally be made available for inspection and copying for a purpose reasonably related to the membership of the association, but the association may not publish the owner's list or provide a copy of it. As a result of the Worldmark decision, it appeared that nonprofit time-share associations would have to provide such lists, despite the prohibition in their own statute. Bills similar to this one have failed passage over the question of whether or not time-share nonprofits should be held to the record release standards of nonprofits generally, or whether their special circumstances justify a different approach. The logic behind provisions for the release of member contact information is that it allows members to communicate, organize and take action if there are problems with the management of the corporation - a form of democratic self-policing that has justified a lower level of oversight from the state Attorney General. This leads to a tension with the countervailing interest in owner privacy, which could be disturbed by unwanted solicitations. The Worldmark court noted this tension, saying "A danger exists in allowing too free an access to membership lists; however, the potential for abuse must be balanced against a member's legitimate needs and rights to utilize lists in election AB 634 Page 9 contests and for purposes reasonably related to a member's interest." It bears noting that the Worldmark case involved a time-share owner who sought to circulate a petition to other owners concerning an amendment to the corporation's bylaws, which raised multiple issues with the management of the corporation. When Worldmark refused to circulate the petition, citing its potentially detrimental effect on association, the plaintiff asked for the membership records to do the mailing himself but was refused, and Worldmark instead offered the "reasonable alternative" of doing the mailing for the plaintiff - at a cost of over $260,000. The court ultimately ordered disclosure of the owner list. 5)This bill in practice . While explicitly exempting time-shares from the general record access provisions in the Corporations Code pertaining to non-profit mutual benefit corporations, the most recent version of this bill has some additional protections for owners and requesters added to it. In practice, this bill would generally prohibit the sharing of the owner's list with any owner or third party, except for legitimate association business. It requires the board to make mailings requested by owners within 30 days of the request and payment of costs, and further requires the association to provide any rejection in writing to the requester with an explanation of the reasons for the denial. This bill would also require the association to make a good faith effort to minimize the cost of a mailing, which could include the use of email for those owners who have consented to communication by email. In cases where the requested mailing relates to a proposed recall of board members or discharge of the management company, a requester may seek expedited action from a local court if the association does not act within 30 days. The court may also order the payment of the requester's court costs if the association cannot show that its refusal was AB 634 Page 10 reasonable and in good faith. 6)Arguments in support . According to the sponsor, the American Resort Development Association, "AB 634 will prevent timeshare owners from having their personal information sold to third parties - including those entities that use the information to market fraudulent time-share services?.AB 634 solves this problem by using language from a Florida state statute designed to protect the privacy of time-share owners in that state. (Florida has more time-shares than any other state). That law, and this bill, creates a process for time-share owners to communicate with association members without the disclosure of the lists. In addition, the committee has added language that insures the cost of the mailing is reasonable." 7)Previous legislation . AB 126 (Hall) of 2013 would have required a time-share association to maintain a complete list of the names and postal addresses of all owners of time-share interests in the time-share plan, and also require the association to obtain an owner's consent to the sharing of their contact information. AB 2290 was held in the Assembly Judiciary Committee. AB 2290 (Hill) of 2012 would have required a time-share association to maintain a complete list of the names and post office addresses of all owners of time-share interests in the time-share plan, and would prohibit the association from publishing the owners list or providing a copy of it to any time-share interest owner or to any 3rd or using or selling the list for commercial purposes. AB 2290 was held in the Assembly Judiciary Committee. AB 2518 (Hall) of 2012 was substantially similar to AB 2290 of 2012. AB 2518 was held in the Senate Rules Committee. AB 2252 (Montanez), Chapter 697, Statutes of 2004, established VOTA, consolidated and revised the entire body of time-share vacation property law, streamlined the regulatory approval process, and added new consumer protections. AB 634 Page 11 REGISTERED SUPPORT / OPPOSITION: Support American Resort Development Association (sponsor) American Resort Development Association, Resort Owner Coalition (sponsor) Opposition None on file. Analysis Prepared by:Hank Dempsey / P. & C.P. / (916) 319-2200 AB 634 Page 12