BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 1738 (Chau)
As Amended May 1, 2014
Hearing Date: June 10, 2014
Fiscal: No
Urgency: No
TH
SUBJECT
Common Interest Developments: Dispute Resolution
DESCRIPTION
Existing law, the Davis-Stirling Common Interest Development Act
requires a common interest development association to provide a
fair, reasonable, and expeditious procedure for resolving
disputes between an association and a member. This bill would
codify minimum requirements for association dispute resolution
procedures by specifying that:
an agreement reached pursuant to the procedure binds the
parties and is judicially enforceable if it is in writing;
the procedure shall provide a means by which a member and the
association may enlist the assistance of an attorney or
another person to explain their position;
if a member or the association intends to enlist the
assistance of an attorney or another person, they must provide
10 days' advance written notice of this intent; and
each party shall bear their own attorney fees and costs.
BACKGROUND
In California, common interest developments (CIDs) are governed
by the Davis-Stirling Common Interest Development Act
("Davis-Stirling Act" or "Act"). Owners of separate property in
CIDs have an undivided interest in the common property of the
development and are subject to the CID's covenants, conditions,
and restrictions. CIDs are also governed by a homeowners
association, which is run by volunteer directors that may or may
not have prior experience managing an association. The Court of
Appeal, Fourth Appellate District, previously observed that:
(more)
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[t]he homeowners associations function almost "as a second
municipal government, regulating many aspects of [the
homeowners'] daily lives." "[U]pon analysis of the
association's functions, one clearly sees the association as
a quasi-government entity paralleling in almost every case
the powers, duties, and responsibilities of a municipal
government. As a 'mini-government,' the association
provides to its members, in almost every case, utility
services, road maintenance, street and common area lighting,
and refuse removal. In many cases, it also provides
security services and various forms of communication within
the community. There is, moreover, a clear analogy to the
municipal police and public safety functions. . . ." In
short, homeowners associations, via their enforcement of the
CC&R's, provide many beneficial and desirable services that
permit a common interest development to flourish. (Villa
Milano Homeowners Ass'n v. Il Davorge (2000) 84 Cal.App.4th
819, 836 [citations omitted].)
Just as with municipal governments, homeowners associations
occasionally find themselves in disputes with their members.
The Davis-Stirling Act provides three distinct dispute
resolution processes that allow these disagreements to be
resolved at varying levels of formality. At the most informal
level, the Act provides for an internal dispute resolution
(IDR) process that essentially allows members to simply and
expeditiously meet and confer with a director from their
association. If the member is unsatisfied with the outcome of
the meet and confer session, the member may lodge an appeal
and seek resolution from the entire board of directors of the
association. The Act also envisions the use of alternative
dispute resolution (ADR) for resolving disagreements between
members and their association. Endeavoring to submit a
dispute to ADR is a jurisdictional prerequisite to bringing an
enforcement action in superior court. As with many ADR
processes, the requirements for proceeding through ADR under
the Act are more formal, requiring parties to serve written
requests for ADR that contain a brief description of the
dispute. Unless otherwise agreed to by the parties, ADR is to
be completed within 90 days and costs are borne by the
respective parties. Finally, the Act provides that any member
or the association may seek to enforce covenants and
restrictions in the property declarations, or terms of the
governing documents, in superior court.
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This bill would add additional requirements to the Act's
minimum standards for IDR, the most informal of the three
dispute resolution processes. Specifically, the bill would
require an agreement reached in an IDR process to be in
writing in order to be judicially enforceable, it would
require an IDR procedure to adopt a means by which a member
and the association may enlist the assistance of an attorney
or another person to explain their position upon 10 days'
advance written notice, and it would specify that each party
to an IDR process shall bear their own attorney fees and
costs.
CHANGES TO EXISTING LAW
1.Existing law , the Davis-Stirling Common Interest Development
Act, establishes the rules and regulations governing the
operation of a common interest development (CID) and the
respective rights and duties of a homeowners association and
its members. (Civ. Code Sec. 4000 et seq.)
Existing law requires associations subject to the
Davis-Stirling Common Interest Development Act to provide an
internal dispute resolution (IDR) process for use in resolving
disputes between an association and a member involving their
rights, duties, or liabilities under the Davis-Stirling Common
Interest Development Act, under the Nonprofit Mutual Benefit
Corporation Law, or under the governing documents of the
common interest development or association. (Civ. Code Sec.
5900(a).)
Existing law provides that an association or a member may not
file an enforcement action in a superior court unless the
parties have endeavored to submit their dispute to alternative
dispute resolution (ADR), as specified. (Civ. Code Sec.
5930(a).)
Existing law specifies that the required IDR process
supplements, and does not replace, the requirement to submit a
dispute to ADR as a prerequisite to filing an enforcement
action in superior court. (Civ. Code Sec. 5900(b).)
Existing law provides that an association shall provide a
fair, reasonable, and expeditious procedure for resolving a
dispute under the required IDR process. (Civ. Code Sec.
5905(a).)
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Existing law provides that a fair, reasonable, and expeditious
IDR procedure shall at a minimum satisfy all of the following
requirements:
the procedure may be invoked by either party to the
dispute. A request invoking the procedure shall be in
writing;
the procedure shall provide for prompt deadlines. The
procedure shall state the maximum time for the association
to act on a request invoking the procedure;
if the procedure is invoked by a member, the association
shall participate in the procedure;
if the procedure is invoked by the association, the
member may elect not to participate in the procedure. If
the member participates but the dispute is resolved other
than by agreement of the member, the member shall have a
right of appeal to the board;
a resolution of a dispute pursuant to the procedure,
which is not in conflict with the law or the governing
documents, binds the association and is judicially
enforceable. An agreement reached pursuant to the
procedure, which is not in conflict with the law or the
governing documents, binds the parties and is judicially
enforceable;
the procedure shall provide a means by which the member
and the association may explain their positions; and
a member of the association shall not be charged a fee
to participate in the process. (Civ. Code Sec. 5910.)
This bill would modify the above minimum standards for a fair,
reasonable, and expeditious IDR procedure to require that:
an agreement reached pursuant to the procedure, which is
not in conflict with the law or the governing documents,
binds the parties and is judicially enforceable if the
agreement is in writing;
the procedure shall provide a means by which the member
and the association, with the assistance of an attorney or
another person, if they so choose, may explain their
respective positions and seek to negotiate a mutually
satisfactory resolution;
if either a member, an association, or both, intends to
have an attorney or another person participate in the
procedure, the procedure shall require the member, the
association, or both, to provide 10 days' written notice of
this intent to be given to the other party. If notice is
not provided, the party not receiving the required notice
shall have the election of postponing the procedure until
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the notice requirement is met; and
each party shall bear the cost of the party's own
attorney fees, if any.
1.Existing law provides that an association that does not
otherwise provide a fair, reasonable, and expeditious dispute
resolution procedure shall follow the default meet and confer
procedure, which consists of the following requirements:
Either party to a dispute may invoke the following
procedure:
o the party may request the other party to meet and
confer in an effort to resolve the dispute. The request
shall be in writing;
o a member of an association may refuse a request to
meet and confer. The association may not refuse a
request to meet and confer;
o the board shall designate a director to meet and
confer;
o the parties shall meet promptly at a mutually
convenient time and place, explain their positions to
each other, and confer in good faith in an effort to
resolve the dispute; and
o a resolution of the dispute agreed to by the parties
shall be memorialized in writing and signed by the
parties, including the board designee on behalf of the
association.
An agreement reached under this process binds the
parties and is judicially enforceable if both of the
following conditions are satisfied:
o the agreement is not in conflict with law or the
governing documents of the common interest development or
association; and
o the agreement is either consistent with the
authority granted by the board to its designee or the
agreement is ratified by the board.
A member may not be charged a fee to participate in the
process. (Civ. Code Sec. 5915.)
This bill would modify the above default meet and confer
procedure to require that:
each party shall have the right to have an attorney or
another person participate when meeting and conferring to
explain their respective positions and seek to negotiate a
mutually satisfactory resolution;
if either a member, an association, or both, intends to
have an attorney or another person participate in the
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procedure, the procedure shall require the member, the
association, or both, to provide 10 days' written notice of
this intent to be given to the other party. If notice is
not provided, the party not receiving the required notice
shall have the election of postponing the procedure until
the notice requirement is met;
each party shall bear the cost of the party's own
attorney fees, if any; and
a member shall not be charged a fee to participate in
the process.
COMMENT
1. Stated need for the bill
The author writes:
The Davis-Stirling Common Interest Development Act sets out an
internal dispute resolution (IDR) procedure to be utilized by
the parties in resolving a dispute between a member or members
and a Homeowner Association Board prior to the initiation of
formal Alternative Dispute Resolution or civil litigation.
There are no provisions in the law specifically permitting
either party to an IDR to be accompanied by another person,
including legal counsel, to provide guidance and to assist in
the negotiation process. Some homeowner associations (HOA)
have used this absence of statutory guidance to unfair
advantage, bringing their counsel to IDR meetings without
notification and/or denying the homeowner's request to have
his or her own counsel present. Too often, the HOA has
counsel at the IDR and the homeowner has none, creating an
inherently unfair situation - and in some circumstances,
homeowners reportedly have been assessed to pay for the HOA's
counsel. Association CC&Rs [covenants, conditions, and
restrictions] and other rules are often difficult for a lay
person to comprehend. Having a homeowner association attorney
versed in the CC&Rs and the law governing HOA's at an internal
dispute resolution proceeding puts a homeowner at a
disadvantage when they do not have counsel or another
knowledgeable person present.
AB 1738 will enhance protections for homeowners undergoing
[IDR] between themselves and [an HOA]. The bill allows both
the homeowner and the representative of HOA to have someone -
including an attorney, fair housing advocate, or anyone else -
assist them during an IDR proceeding. If either party intends
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to have someone assist them in the IDR proceeding, they must
provide a 10 day advanced written notice to the other party
pursuant to the methods identified in subdivision (b) of Civil
Code Section 4035 and subdivision (a) of Civil Code Section
4040. If notice is not provided, the party not receiving the
required notice shall have the election of postponing the
procedure until the notice requirement is met. The bill
further specifies that agreements reached through this IDR
process should be in writing and clarifies that each side
shall pay the costs of their own attorney. AB 1738 will
ensure that homeowners are given an equal playing field when a
dispute arises between them and an HOA by allowing both the
homeowner and the HOA to have someone assist them during an
IDR proceeding.
2. Development of Davis-Stirling Dispute Resolution Procedures
In 2003, the Legislature directed the California Law Revision
Commission (CLRC) to study common interest development law.
(See SCR 4 (Morrow, Ch. 92, Stats. 2003.) 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 way to have their concerns heard and addressed. These
recommendations led to the formation of the current two-tiered
dispute resolution process that must be followed before a party
may file suit in superior court, which were implemented in AB
1836 (Harman, Ch. 754, Stats. 2004).
The first tier is the informal internal dispute resolution
process which is developed by a homeowners association and its
members. This IDR process seeks to encourage communication and
negotiation directly between the association and a homeowner.
Although this step in dispute resolution seems too basic to need
codification, the CLRC in its recommendation concluded that most
associations needed these basic ground rules. The outcome of
this first tier does not bind the parties to any decision unless
both parties agree to the result. Because this first step does
not require mediation by a neutral third party, it is supposed
to be a no-cost process, and, indeed, the law specifies that
members of an association shall not be charged to participate in
the process. The second tier represents the product of CLRC's
recommendations to reform and strengthen the then-existing
alternative dispute resolution provisions in the Davis-Stirling
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Act. Following CLRC's recommendations, the alternative dispute
resolution process was expanded to include those actions that
arise out of an association's own governing documents and
bylaws, or out of relevant statutes such as the Davis-Stirling
Act and the Nonprofit Mutual Benefit Corporation Law.
3. Informal Nature of Internal Dispute Resolution
This bill would introduce a degree of formality into the IDR
process that, to date, has informally allowed members and
associations to resolve disputes without the need of more formal
dispute resolution procedures and protocols. Writing in
support, the Conference of California Bar Associations states:
AB 1738 responds to a problem encountered by a number of
homeowners who have sought to utilize the IDR process: Some
associations have sought to exploit the lack of clarity in
current law by making the negotiation process uneven. In some
cases, associations will have counsel attend dispute
resolution sessions without notification. In other cases, the
association will have counsel present, but will deny the
homeowner's request for equal representation. And in some
instances, homeowners reportedly have been assessed to pay for
the HOA's counsel. Such gamesmanship on the part of some HOAs
is both unfair and contrary to the purpose of the IDR process,
which is to a productive meet and confer that staves off
protracted and costly litigation. By their nature, these
disputes and the meet-and-confers generally involve legal
issues, for which the presence of counsel, or another person
knowledgeable in the issues involved, is particularly
appropriate and productive.
However, as opponents to this bill illustrate, a change in this
direction threatens to collapse the distinction between IDR and
ADR, which may effectively deny associations and members the
ability to informally resolve disputes. Writing in opposition,
former Assemblyman Stirling, states:
I have reviewed Assemblyman Chau's AB 1738 and unfortunately
believe that, although well intended, it unnecessarily
complicates the intent of Senator Tom Harmon's AB 1836 which
was sponsored by the trustworthy, objective and deliberative
body known as the California Law Revision Commission. . . .
Because disputes were becoming more difficult and costly to
resolve as the parties were headed toward litigation, a more
personal and less formal process was needed. Thus, Internal
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Dispute Resolution (IDR) was designed to allow
member-to-member discussions in a non-threatening atmosphere
and without "lawyering up".
To my knowledge as the author of the Davis-Stirling Act, and
both a Superior Court Judge and mediator, IDR has been a great
success. But, AB 1738 would load up the process with formal
notifications, deadlines, disclosures and costs to all
homeowners. In essence, it makes the less formal process akin
to the rigid Alternate Dispute Resolution (ADR) process in
statute that is required in order to proceed to litigation.
As a trier of fact, I would respectfully suggest that the
Committee consider exploring the alleged problem before
altering the very simple and informal process that has proven
to work so well. If the problems alleged by one sponsor are
so frequent or grievous an informational hearing or study this
fall would document the need and may actually devise a better
process than AB 1738.
Indeed, supporters of this bill are already calling for
additional formalizing changes to the IDR process in response to
the author's initial foray. The Educational Community for
Homeowners states in their support letter that they "will
support AB 1738 if further amended" to include both a
requirement for parties who notice their plan "to bring a person
in addition to an attorney [to state] the capacity in which that
person will be attending i.e. fair housing advocate, CPA
[Certified Public Accountant], contractor, etc." as well as
"[l]anguage that any statements made during the proceeding and
any documents specifically prepared for the proceeding shall be
inadmissible in any legal proceeding."
Staff notes that existing law already allows associations to
adopt IDR procedures that permit members or the association to
enlist the assistance of attorneys or other technical experts in
the course of discussions. Further, to the extent certain
associations are employing attorneys in an effort to unbalance
IDR discussions, those associations are arguably not complying
with the Act's mandate that IDR be "fair, reasonable, and
expeditious."
In order to preserve the informal character of the existing IDR
process while addressing the author's stated concerns, the
author offers the following amendments:
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Author's Amendments :
On page 3, strike lines 1 through 6, and insert: "(e) A
written resolution of a dispute pursuant to the procedure,
which is not in conflict with the law or the governing
documents, binds the association and is judicially
enforceable. A written agreement reached pursuant to the
procedure, which is not in conflict with the law or the
governing documents, binds the parties and is judicially
enforceable."
On page 3, strike lines 7 through 28, and insert: "(f) The
procedure shall provide a means by which the member and the
association may explain their positions. The member and
association may be assisted by an attorney or another person
in explaining their positions at their own cost."
On page 3, line 30, strike "Each party shall bear the cost of
the" and strike line 31 in its entirety.
On page 4, strike lines 5 through 27, and insert: "(4) The
parties shall meet promptly at a mutually convenient time and
place, explain their positions to each other, and confer in
good faith in an effort to resolve the dispute. The parties
may be assisted by an attorney or another person at their own
cost when conferring."
On page 4, line 31, strike "An" and insert "A written"
On page 5, line 2, strike "Each party shall bear the cost of
the party's own" and strike line 3 in its entirety.
Support : California Alliance for Retired Americans; Center for
California Homeowner Association Law; Educational Community for
Homeowners
Opposition : Community Associations Institute; one individual
HISTORY
Source : Conference of California Bar Associations
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Related Pending Legislation :
AB 968 (Gordon) would provide that an association subject to the
Davis-Stirling Common Interest Development Act is responsible
for maintaining, repairing, and replacing the designated common
area, the owner of each separate interest is responsible for
maintaining, repairing, and replacing their separate interest,
and the owner of the separate interest is responsible for
maintaining an exclusive use common area appurtenant to the
separate interest while the association is responsible for
repairing and replacing the exclusive use common area, unless
otherwise provided in the common interest development
declaration. This is pending in the Senate Committee on
Transportation and Housing.
AB 1360 (Torres) would allow associations subject to the
Davis-Stirling Common Interest Development Act to conduct
elections over the Internet. This bill is pending in the Senate
Committee on Judiciary.
AB 2100 (Campos) would prohibit an association subject to the
Davis-Stirling Common Interest Development Act from imposing a
fine or assessment against a member of a separate interest for
reducing or eliminating watering of vegetation or lawns during
any period for which the Governor has declared a state of
emergency, or a local government has declared a local emergency,
due to drought. This is pending in the Senate Committee on
Transportation and Housing.
AB 2104 (Gonzalez) would provide that any provision of the
governing documents or of the architectural or landscaping
guidelines or policies of an association subject to the
Davis-Stirling Common Interest Development Act shall be void and
unenforceable if it prohibits, or includes conditions that have
the effect of prohibiting, low water-using plants as a group or
as a replacement of existing turf, or if the provision has the
effect of prohibiting or restricting compliance with a local
water-efficient landscape ordinance or water conservation
measure. This is pending in the Senate Committee on
Transportation and Housing.
SB 992 (Nielsen) would prohibit an association subject to the
Davis-Stirling Common Interest Development Act from imposing a
fine or assessment on separate interest owners for reducing or
eliminating watering of vegetation or lawns during any period
for which the Governor has declared a state of emergency due to
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drought. This is pending in the Assembly Committee on Housing
and Community Development.
SB 1026 (Vidak) would permit associations subject to the
Commercial and Industrial Common Interest Development Act and
the Davis-Stirling Common Interest Development Act to serve an
owner with a Notice of Default, the first step in the
non-judicial foreclosure process, for failure to pay required
assessments through posting, mailing, and publishing the
notices, as specified, when those notices cannot be personally
served after reasonable diligence, as specified. This bill is
pending in the Senate Committee on Judiciary.
Prior Legislation :
SB 752 (Roth, Ch. 605, Stats. 2013) established the Commercial
and Industrial Common Interest Development Act and provided for
the creation and regulation of industrial or commercial common
interest developments.
AB 1836 (Harman, Ch. 754, Stats. 2004) reorganized and expanded
the alternative dispute resolution processes and procedures
contained in the Davis-Stirling Act, and expanded the scope of
the disputes to which alternative dispute resolution processes
and procedures may be applied within common interest
developments. This bill also required associations to develop
fair, reasonable, and expeditious internal dispute resolution
processes.
AB 2376 (Bates, Ch. 346, Stats. 2004) requires a homeowner
association to provide a fair and reasonable process for
reviewing a request by a homeowner for a physical alteration to
their unit or the common area.
AB 2598 (Steinberg, 2004) would have prohibited the use of the
non-judicial foreclosure process by homeowner associations in
collecting overdue assessments when the underlying debt is for
the failure to pay association assessments or dues. This bill
was vetoed by Governor Schwarzenegger.
SB 1682 (Ducheny, 2004) would have required homeowner
associations to offer binding arbitration before placing a lien
on the property or before initiating foreclosure proceedings.
This bill died on the Assembly Floor.
Prior Vote :
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Assembly Floor (Ayes 77, Noes 0)
Assembly Committee on Judiciary (Ayes 10, Noes 0)
Assembly Committee on Housing and Community Development (Ayes 7,
Noes 0)
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