BILL ANALYSIS
AB 1836
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Date of Hearing: May 4, 2004
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
AB 1836 (Harman) - As Introduced: January 22, 2004
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : COMMON INTEREST DEVELOPMENTS: ALTERNATIVE DISPUTE
RESOLUTION
KEY ISSUES :
1)SHOULD THE ALTERNATIVE DISPUTE RESOLUTION REQUIREMENT PRIOR TO
SUIT REGARDING COMMON INTEREST DEVELOPMENTS BE ENHANCED AND
BROADENED IN ORDER TO MAKE IT MORE EFFECTIVE?
2)SHOULD COMMON INTEREST DEVELOPMENTS BE REQUIRED TO ADOPT
INTERNAL DISPUTE RESOLUTION PROCEDURES IN AN EFFORT TO RESOLVE
DISPUTES BETWEEN MEMBERS AND THE ASSOCIATION AS QUICKLY AND
AMICABLY AS POSSIBLE?
SYNOPSIS
As proposed to be amended, this is a non-controversial bill. It
is sponsored by the California Law Revision Commission (CLRC or
Commission) to implement a Commission recommendation to improve
and expand the statutory requirement for alternative dispute
resolution prior to litigation between homeowner associations
and members of common interest developments. The bill also
requires that associations adopt internal dispute resolution
procedures in an effort to resolve the dispute as informally and
quickly as possible so that more formal dispute resolution
mechanisms are not required. Amendments to be taken by the
author remove all opposition.
SUMMARY : Revises dispute resolution procedures involving common
interest developments (CIDs). Specifically, this bill :
1) Expands the scope of the existing ADR requirement, so
that it applies to a range of common CID disputes that are
currently not covered - i.e., disputes involving the
Davis-Stirling Common Interest Development Act, nonprofit
corporation law, and judicial writs.
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2) Provides for tolling of the statute of limitations to
eliminate a loophole that allows a plaintiff to avoid the
ADR requirement by waiting until the last minute to file a
lawsuit.
3)Protects the confidentiality of statements made during ADR
consistently with the Evidence Code.
4)Reorganizes existing statutory provisions to make them easier
to understand and use.
5)Requires that each association provide its members with an
internal dispute resolution procedure, at no cost. If an
association does not provide its own procedure, a default
"meet and confer" procedure would apply.
EXISTING LAW:
1)Generally regulates various aspects of the creation and
operation of common interest developments. (Civil Code
section 1351 et seq. Further statutory references are to this
code unless otherwise noted.)
2)Generally requires that before either a homeowner's
association or an owner may file an action to enforce an
association's governing documents (CC&Rs, bylaws, operating
rules, etc.), the parties must "endeavor" to submit their
dispute to a form of alternative dispute resolution such as
mediation or arbitration, which may be binding or nonbinding
at the option of the parties. The parties bear the costs of
any ADR they may engage in. This requirement applies only if
the action is solely for declaratory or injunctive relief (or
for that type of relief in conjunction with a claim for
damages not exceeding $5,000). It does not apply to a claim
for association assessments. (Section 1354.)
3)Recognizes that homeowner associations, as quasi-governmental
entities that owe fiduciary duties to their members, are
required to adhere to due process and equal protection
obligations. (See Cohen v. Kite Hill Community Assn., 142
Cal.App.3d 642, 650-651 (1983) and authorities there cited.
See also Grand Bay of Brecksville Condominium v. Markos, 1999
Ohio App. Lexis 1162 (Ohio App. Ct. 1999).)
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4)Provides that a homeowner may invoke the ADR procedure for an
assessment dispute by paying under protest the amount of the
assessment plus late charges, interest, and delinquency costs
(Section 1366.3) and provides an internal process for
disputing an assessment. (Section 1367.1(c).)
5)Provides that if either the association or an owner has filed
an action to enforce the association's governing documents,
the action may be stayed and the matter referred to ADR on
written stipulation of the parties. Trial court delay
reduction rules do not apply during the time the action is
stayed. The parties bear the costs of the ADR. (Section
1354(d).)
6)Provides an incentive for the parties to agree to ADR, which
assesses attorney's fees against the losing party in the event
of a lawsuit. The statute also gives the court discretion, in
determining the amount awarded, to "consider a party's refusal
to participate in alternative dispute resolution prior to the
filing of an action." (Section 1354(f).)
7)Provides that confidentiality is granted to such ADR
procedures. (Section 1354(g)-(h).)
8)Does not require that associations adopt internal dispute
resolution procedures, other than for assessment disputes.
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : According to the author, AB 1836 would make two
general changes to CID law, to facilitate non-judicial
resolution of disputes between home owner associations and their
members:
Improvements to Existing ADR Requirement . Existing law requires
that a person try to settle a CID dispute through alternative
dispute resolution, before filing a lawsuit. This requirement
is beneficial, but imperfect. AB 1836 would improve the process
in the following ways:
The bill would expand the scope of the ADR
requirement, so that it applies to a range of common
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CID disputes that are currently not covered - i.e.,
disputes involving the Davis-Stirling Common Interest
Development Act, nonprofit corporation law, and
judicial writs.
The statute of limitation rules would be
adjusted to eliminate a loophole that allows a person
to avoid the ADR requirement by waiting until the last
minute to file a lawsuit.
The procedure for requesting ADR would be made
more efficient.
Protection of the confidentiality of statements
made during ADR would be improved by incorporating the
general rules governing mediation confidentiality in
the Evidence Code.
The existing statutory language would be
reorganized to make it easier to understand and use.
Internal Dispute Resolution Procedure. In addition to reforming
the existing ADR provision, AB 1836 would require that each
homeowners association provide its members with an internal
dispute resolution procedure, at no cost. If an association
does not provide its own procedure, a default "meet and confer"
procedure would apply. A homeowner would never be required to
use the internal procedure. In some cases, a dispute results
from a breakdown in communication. The internal procedure would
help to resolve those sorts of disputes before they become more
serious.
As to the first part of the bill, the sponsor, California Law
Revision Commission, adds:
The Davis-Stirling Act seeks to encourage parties to a
dispute within the association to resolve their differences
out of court. Civil Code Section 1354 includes a
well-articulated requirement that, before filing a lawsuit,
the parties must engage in alternative dispute resolution.
The statutory procedure, while salutary, has a number of
limitations that render it less effective than it might
otherwise be. For example: (1) The statute only requires
ADR efforts before filing suit to enforce the association's
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governing documents. But it may be equally important to
resolve disputes involving statutory requirements of the
Davis-Stirling Act or of the Nonprofit Mutual Benefit
Corporation Law that are applicable to the association and
its members. (2) The statute excuses ADR efforts if a
lawsuit is filed within 120 days of the running of the
statute of limitations. This facilitates manipulation by a
party who may simply wait until 120 days before the statute
expires, and then file suit. (3) The statute only requires
ADR efforts before bringing an action for declaratory or
injunctive relief. Writ relief is an equally important
vehicle for enforcing rights in the CID context, and it is
not covered. (4) The duty to make a good faith effort to
resolve the dispute out of court is enforceable by an award
of attorney's fees and costs to the prevailing party. But
the statute as drawn appears to limit the award to an
action to enforce covenants and restrictions, omitting an
action to enforce other governing documents of the
association. (5) There are numerous other lesser defects in
the statute, such as an inefficient and ineffective manner
of service of a request for dispute resolution, and ADR
confidentiality provisions that are narrower in coverage
than the general mediation confidentiality provisions of
the Evidence Code. The proposed law addresses these
concerns by expanding the application of the existing
statute to cure these defects.
The Commission's comments to proposed section 1369.520 make
clear that the pre-suit ADR requirement covers an action for
writ relief, as well as an action for declaratory or injunctive
relief. It makes clear that a dispute resolution effort is not
a prerequisite to a small claims action. Because the alternative
dispute resolution requirement is limited to an action for
declaratory, injunctive, or writ relief (or those types of
relief joined with a damage claim not exceeding the
jurisdictional limit of the small claims division of superior
court), the requirement necessarily is inapplicable to a small
claims proceeding. (Cf. Code Civ. Proc. 116.220 (limited
jurisdiction of small claims court).) A small claims action
itself satisfies key functions of alternative dispute resolution
- it provides a quick and inexpensive means of resolving a
dispute within the jurisdiction of the small claims division of
the superior court.
As to the second part of the bill regarding internal association
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dispute resolution procedures, the CLRC states:
[T]the proposed law includes a requirement that every
homeowners association must make available a fair,
reasonable, and expeditious internal dispute resolution
mechanism, at no cost to its members. This would
supplement the formal dispute resolution procedure
involving use of a neutral provided in Civil Code Section
1354. Under the proposed law, if an association fails to
provide such an internal dispute resolution mechanism, a
default dispute resolution mechanism would apply. The
default mechanism is a meet and confer process, in which
the board is required to appoint one of its members to meet
with the homeowner and hear the complaint. Any resulting
agreement would be binding if it is consistent with the
law, the association's governing documents, and the
authority granted by the board to its representative.
As proposed to be amended, the association's obligation to adopt
fair, reasonable and expeditious internal procedures for
resolving disputes is designed to be flexible and adaptable
given, among other factors, the size and nature of the
association and the nature of the dispute. One type of dispute
resolution procedure might not be appropriate in every case.
The fundamental principle is that the dispute resolution
procedure should be fair, reasonable and expeditious in light of
all the circumstances.
ARGUMENTS IN SUPPORT: The Congress of California Seniors and
the California Dispute Resolution Council have taken a
support-if-amended position. Their requested amendments have
been taken by the author or are addressed to ancillary matters.
Pending Related Legislation. AB 2376 (Bates) would enact a
separate CLRC recommendation regarding internal dispute
resolution procedures related to architectural review decisions.
This bill is scheduled to be heard by the Committee today.
REGISTERED SUPPORT / OPPOSITION :
Support (if amended)
California Dispute Resolution Council
Congress of California Seniors
AB 1836
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Opposition
None on file.
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334