BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
AB 1836 A
Assembly Member Harman B
As Amended June 28, 2004
Hearing Date: July 1, 2004 1
Civil Code and Code of Civil Procedure 8
KH 3
6
SUBJECT
Common Interest Developments: Dispute Resolution
DESCRIPTION
This bill reorganizes the alternative dispute resolution
processes and procedures contained in the Davis-Stirling
Act and expands the scope of the disputes to which
alternative dispute resolution processes and procedures
must or can be applied within common interest developments.
(This analysis reflects author's amendments to be offered
in Committee.)
BACKGROUND
This bill was heard on June 29, 2004 and was put over for
further analysis. Comment 1 on page 3 discusses the
author's amendment to be offered.
In 2003, the Legislature directed the California Law
Revision Commission (CLRC) to study common interest
development law. [SCR 4 (Morrow), Stats. 2003, Res. Ch.
92.]
CLRC issued its Recommendation on Alternative Dispute
Resolution in Common Interest Developments in September
2003, recommending improving the existing "mandatory"
alternative dispute resolution requirement as a
prerequisite to litigation and requiring every association
to offer its residents a simple, informal, and cost-free
(more)
AB 1836 (Harman)
Page 2
way to have their concerns heard and addressed.
This bill results from the CLRC recommendation.
CHANGES TO EXISTING LAW
1.Existing law requires that before either the 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 (ADR) 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. The court may excuse
a party's failure to seek ADR in a number of
circumstances. [Civil Code Sec. 1354(b), (c).]
This bill would expand the scope of the pre-litigation
ADR requirement to include actions for the specified
forms of relief to enforce the Davis-Stirling Act,
Nonprofit Mutual Benefit Corporation Law or the governing
documents of the association.
2.Existing law 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. [Civil Code Sec. 1354(d).]
This bill would expand the scope of the litigation
matters that may be stayed for referral to ADR to include
any action to enforce the Davis-Stirling Act, Nonprofit
Mutual Benefit Corporation Law or the governing documents
of the association.
AB 1836 (Harman)
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3.Existing law provides that the prevailing party shall be
awarded reasonable attorney's fees and costs in the event
of a lawsuit regarding governing documents. The court
has 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."
[Civil Code Sec. 1354(f).]
This bill would reorganize these provisions and provide
that in determining the amount of attorney's fees to
award, the court "may consider whether a party's refusal
to participate in alternative dispute resolution before
commencement of the action was reasonable."
4.Existing law provides that communications made in the
course of the ADR process are confidential. [Civil Code
Sec. 1354(g), (h).]
This bill would replace the former provisions with a
reference to the general mediation confidentiality
statute in the Evidence Code, but precludes application
of that statute to arbitration proceedings.
5.Existing law requires that members of an association be
provided with a summary of the ADR requirements annually.
[Civil Code Sec. 1354(i).]
This bill would clarify that it is the duty of the
association to provide the summary.
COMMENT
1.Author's amendment offered at Committee hearing June 29,
2004
At the Committee hearing on June 29, 2004, the author
offered an amendment to Section 7 of the bill, page 13
lines 21 and 22 to clarify an amendment made in the June
28, 2004 version of the bill that could have been
interpreted to require pre-litigation alternative dispute
resolution in assessment disputes. The hearing was
continued to July 1, 2004 to allow the bill's supporters
and opponents, and Committee staff, time to consider the
amendment and analyze its effect upon existing law and
the bill, and their intersection or interaction with
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Page 4
other pending bills.
Under existing law, before either the 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 (ADR)
such as mediation or arbitration, which may be binding or
nonbinding at the option of the parties. 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.
As amended June 28, 2004, AB 1836 would have expanded the
scope of the pre-litigation ADR requirement to include
"an action for collection of assessments, except a small
claims action." This amendment was intended to
accommodate any alternative dispute resolution procedures
that may be required if AB 2598 (Steinberg) and SB 1682
(Ducheny) (which are identical) are enacted. Those bills
would require alternative dispute resolution before
certain activities could be undertaken to enforce an
assessment debt, which activities do not include an
"action" (meaning a lawsuit) to collect delinquent
assessments. The June 28, 2004 version of AB 1836
therefore appeared to be imposing a new pre-litigation
ADR requirement for assessment collection lawsuits, which
was not what the author intended.
The author will now amend AB 1836 to continue existing
law and allow for any future expansion of pre-litigation
ADR requirements as well, as follows:
On page 13, strike out lines 21 to 22 and insert "(d)
Except as otherwise provided by law, this section does
not apply to an assessment dispute."
2.Stated need for the bill
In its recommendation, the CLRC estimates that there are
3.5 million common interest development (CID) dwelling
units in California. CLRC observes that "in a dispute
between an individual homeowner and the association,
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there is an inherent inequality of position, since the
association is able to fund litigation costs from
association-wide assessments, including assessment of the
homeowner with whom the association is engaged in
litigation."
The CLRC observes that there are structural factors that
work against effective alternative dispute resolution,
including the relative inequality of bargaining position
between the association and an individual homeowner, and
the cost of invoking a neutral resolution process.
The CLRC "has concluded that California law governing
CIDs could be substantially improved by . . . providing
more affordable and available means to ensure compliance
with the law and resolve disputes among CID members and
boards."
With respect to the mandatory pre-litigation ADR
requirement, the CLRC states that its proposed law
expands application of the existing statute to cure
identified defects, and reorganizes and recasts the
existing statute for ease of use and understanding.
The CLRC's proposed law includes a requirement that every
homeowners' association make available a fair, reasonable
and expeditious internal dispute resolution mechanism at
no cost to homeowners. Under the proposed law, if an
association fails to provide such an internal dispute
resolution mechanism, a default dispute resolution
mechanism would apply, which is a meet-and-confer
process. The board would be 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.
3.Bill would create a two-tiered dispute resolution process
AB 1836 would create a two-tiered dispute resolution
process that must be followed before a party may file
suit. The first tier is an informal internal process
which must be developed by the homeowners' association
and the homeowners. This internal dispute process would
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seek to encourage communication between the association
and the homeowner. Although this step in dispute
resolution seems too basic to need codification, the CLRC
concludes that most associations need these basic ground
rules. The first tier would not bind the parties to any
decision unless both parties agree. Because this first
step does not require mediation by a neutral third party,
it is a no-cost process. AB 1836 also requires the use
of local dispute resolution programs to the extent that
it is deemed reasonable. For example, some counties do
not have local dispute resolution programs and therefore
it would not be reasonable to mandate the use of a
nonexistent program.
The second tier is the CLRC's recommendations to reform
and strengthen the existing alternative dispute
resolution provisions in the Davis-Stirling Act. In
particular, alternative dispute resolution is expanded to
those actions that arise out of an association's own
documents and bylaws or relevant statutes, such as the
Davis-Stirling Act and the Nonprofit Mutual Benefit
Corporation Law.
4.Application of CLRC's proposed revision to assessment
disputes
The authors of SB 1682 (Ducheny) and AB 2598 (Steinberg)
have requested to incorporate the ADR processes detailed
in the CLRC proposed law into their bills by reference,
and, with the consent of AB 1836's author, have amended
their bills to replace Civil Code Section 1367.1(c)(1)
with:
Prior to recording a lien or initiating a foreclosure
action for delinquent assessments, an association
shall participate in dispute resolution pursuant to
Article 5 (commencing with Section 1363.810) of
Chapter 4 or alternative dispute resolution with a
neutral third party pursuant to Article 1 (commencing
with Section 1368.3) of Chapter 7 if so requested by
the owner.
The authors of SB 1682 and AB 2598 have also amended
their bills in other respects to incorporate the ADR
options of this bill into the context of assessment
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disputes. These amendments would be in Civil Code
Sections 1365.1(b) (annual notice of rights and
responsibilities sent to homeowners), 1367.1(a)(5) (a new
subdivision specifying additional contents of a pre-lien
notice), 1367.4(b)(2) (a new subdivision regarding
limited enforcement options for assessment debts below
$2,500), and 1367.4(c)(2) (a new subdivision regarding
conditions for foreclosure for assessment debts $2,500
and over).
The author of AB 1836 will remove Section 4 of the bill,
which would have amended Civil Code Section 1367.1(c)(1),
to prevent any conflict or chaptering-out problems.
5. Author's amendments
On page 7, delete Section 4 (strike out page 7, lines 8
to 40, strike out pages 8 and 9, strike out page 10,
lines 1 to 35).
On page 13, strike out lines 21 to 22 and insert "(d)
Except as otherwise provided by law, this section does
not apply to an assessment dispute."
Support: None Known
Opposition: One individual
HISTORY
Source: California Law Revision Commission
Related Pending Legislation: AB 2598 (Steinberg) and SB
1682 (Ducheny) mirror-image bills
that would change assessment
enforcement mechanisms and
procedures, would repeal "pay under
protest" requirement for homeowner to
request ADR in assessment dispute
cases, and would expressly
incorporate CLRC revisions of AB 1836
for assessment disputes. (AB 2598 was
passed by the Committee at the June
29, 2004 hearing.)
AB 1836 (Harman)
Page 8
Prior Legislation: None Known
Prior Vote: Assembly Housing and Community Development
Committee 9-0
Assembly Judiciary Committee 11-0
Assembly Floor 76-0
Senate Housing and Community Development Committee 6-0
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