Articles Posted in Arbitration (ADR/IDR)

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*New Case Lawhoa-mediation

The Davis-Stirling Act promotes the nonjudicial resolution of disputes between homeowners associations (“HOAs”) and their members in various respects. One example is found contained in Civil Code Sections 5930 et. seq.  which, in sum, require that the disputing parties to endeavor to resolve the dispute through Alternative Dispute Resolution (“ADR”) before a lawsuit is filed. ADR is essentially a form of mediation that uses a neutral third-party mediator (often a retired judge) to assist the parties in securing a mutually acceptable resolution.

Experienced HOA Board members, management professionals, and attorneys understand that ADR is often successful in resolving a dispute before it escalates to costly and protracted litigation. That resolution is typically memorialized in a written settlement agreement negotiated during ADR and executed by the parties. The settlement agreement often governs what actions must be taken by the parties within specified time frames. For example, in an architectural dispute, the settlement agreement may require the homeowner to take corrective measures (i.e., to modify or remove unapproved architectural improvements) within a specified time frame.

However, in some instances, a party to the settlement agreement may subsequently fail to honor its terms. The other party is then placed in a position of having to take legal action to enforce the other party’s compliance with the settlement agreement. The enforcing party may then have concerns regarding its ability to recover its attorney’s fees in taking such action. While the Davis-Stirling Act allows for a prevailing party in an action to enforce a HOA’s governing documents to recover its attorney’s fees, it is unclear whether enforcement of a settlement agreement reached at ADR constitutes such an enforcement action.

Fortunately, the recent case of Rancho Mirage Country Club HOA v. Hazelbaker (2016) 2 Cal. App. 5th 252 (“Hazelbaker”) addressed this exact issue… Continue reading

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HOA-IDR-Lawyers.jpg*New Legislation

Provisions of the Davis-Stirling Common Interest Development Act (Civ. Code §§ 4000 – 6150) currently require homeowners associations (“HOAs”) to “provide a fair, reasonable, and expeditious procedure for resolving a dispute” between a HOA and its members. Civ. Code §§ 5900, 5905. This procedure is commonly referred to as “Meet and Confer” or “Internal Dispute Resolution” (“IDR”). Its purpose is to provide a non-adversarial forum where a HOA member and a HOA Director can meet informally to see if a resolution to the dispute can be secured short of involving attorneys and taking legal action.

However, the passage of AB 1738 (Chau) will upset this non-adversarial and informal structure through providing a member with the right to have the member’s attorney present at the IDR meeting. While this may not seem problematic, HOAs and industry professionals that are familiar with the IDR process understand that AB 1738 will undoubtedly result in HOAs incurring greater attorney’s fees to resolve member disputes. CAI’s California Legislative Action Committee’s (CAI-CLAC) “Call to Action” on AB 1738 illustrated its inherent problems:

“AB 1738 encourages members to bring attorneys and others to their first meeting with a single board member who has volunteered to help work out the member’s problem or concern. These simple ‘meet-and-confer’ conversations over coffee most often resolve an issue. When they occasionally don’t, either party may pursue a more formal Alternative Dispute Resolution (ADR) process that does involve lawyers. Nothing in law prevents lawyers from attending IDR right now, but AB 1738 actually promotes having them present to argue the issue(s). This will invariably make the discussion adversarial…

…If a member brings an attorney [to IDR], the HOA will very likely bring an attorney. At $300 per hour, each IDR will cost HOAs a minimum of $900 when one considers the lawyer’s time preparing, attending and any follow-up actions. [AB 1378] will end up increasing assessments.”

These sentiments were echoed by the Educational Community for Homeowners (ECHO) in its opposition to AB 1738: “By default, associations will bring their attorneys to IDR. In order to protect themselves, owners will also bring their attorneys. This increases the expenses for both parties, and encourages an adversarial atmosphere.”

IDR is not mediation, but an informal meeting between the member and at least one (1) HOA Director. As such, the communications during the IDR meeting are generally not subject to the confidentiality requirements that cover the more formal “Alternative Dispute Resolution” (“ADR”) process. AB 1738 could allow for the communications and documents discussed at IDR to be admissible in future litigation, and thus serve as a significant problem for the HOA. This is one reason why our office, along with the majority of HOA attorneys, are advising our HOA clients engaged in IDR with a member to close and reschedule the IDR meeting if the member unexpectedly brings their attorney to the IDR meeting. If the member is represented by an attorney, the HOA should ensure that it is as well. Rescheduling the IDR meeting so that the HOA’s attorney can also be present is vital to protecting the HOA’s interests.

Despite overwhelming HOA industry opposition to AB 1738, it was signed into law by Governor Brown on September 18, 2014, and will take effect January 1, 2015. To read the text of AB 1738 and how it will amend the current provisions of Civil Code Sections 5910 and 5915, click here.

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AB 1738 represents a tremendous setback for HOAs and their members in their efforts to resolve disputes in a quick and cost-effective manner. Where those efforts fail, the parties are free under current law to move to ADR (a form of mediation) in order to involve attorneys and see if a resolution can be secured short of litigation. As a result of AB 1738, HOA Boards of Directors and management professionals must be cognizant of the problems that could arise if a member’s attorney attends the IDR meeting without the HOA’s attorney also being present. HOAs seeking specific guidance and recommendations on this issue should consult their legal counsel.

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hoa update 2014Our “Annual Legislative & Case Law Update” newsletter for the year 2014 is now available in our library!

The Legislative & Case Law Update provides an overview of the new legislation and case law impacting California Homeowners Associations (“HOAs”) as we head into 2014. The new legislation includes, among other items, the re-organization of the Davis-Stirling Act (now in effect), and a bill that clarifies contractor licensing requirements for HOA managers. The new case law includes rulings that may impact HOA election rules, membership rights to attend Board meetings, use of HOA media outlets during election campaigns, insurance defense coverage, attorney’s fees recovery in HOA disputes, and assessment collection procedures.

Click here to read our Annual Legislative & Case Law Update (2014)

Have questions on any of the new legislation or case law? Click here to send us a question online.

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*New Case Lawhoa foreclosure

The California Civil Code requires community associations (“HOAs”) to levy regular and special assessments as necessary to perform the HOA’s obligations under its governing documents. However, when a homeowner fails to pay those assessments, HOAs are often left with no alternative other than to pursue the owner in accordance with the collection methods sanctioned under the HOA’s governing documents and the Civil Code. Because those methods could result in the foreclosure of the delinquent homeowner’s property, it is paramount that HOAs strictly comply with the statutory procedures and requirements applicable to assessment collection (i.e., transmittal of notices, dispute resolution procedures, votes to initiate foreclosure, etc.).

The recent case of Diamond v. Casa Del Valle Homeowners Association 2013 DJDAR 9176, which has been certified for publication, illustrates how failing to comply with those procedures and requirements can result not only in the invalidation of a HOA’s assessment lien, but also an award of attorney’s fees and costs to the delinquent homeowner…

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hoa adr.jpg*Asked & Answered

Asked – My HOA previously sent out an ADR request to a homeowner which was accepted shortly thereafter. The HOA has been attempting to schedule the ADR by providing the homeowner with numerous dates and times that worked for the HOA. However, the homeowner has rejected all offered dates and is demanding that the ADR take place at the end of the 90 day period set forth in the Civil Code. Is the HOA obligated to schedule the ADR as far out as possible per the homeowner’s demands?

Answered – No. California Civil Code Section 1369.540(a) simply provides that upon acceptance of a request to participate in Alternative Dispute Resolution (“ADR”), “the parties shall complete the [ADR] within 90 days.” Though it is not explicitly stated, both parties have an obligation to act reasonably and in good faith in their efforts to schedule the ADR within the statutory deadline. If the HOA offers the homeowner a range of available dates, the homeowner is not entitled to unreasonably decline to participate on any of those dates and, in doing so, delay the efficient resolution of the matter. This is especially true when the dispute involves a safety issue which needs immediate resolution.

Depending on the circumstances and history of the dispute, the homeowner’s failure to cooperate in the scheduling process may be deemed a rejection of ADR, thereby authorizing the HOA to file a lawsuit to resolve the dispute. Additionally, if a lawsuit is filed and the HOA prevails, the court may consider the homeowner’s unreasonable refusal to schedule/participate in the ADR when determining the amount of the HOA’s attorneys’ fees award. Ca. Civ. § 1369.580.

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HOAs must use caution when taking action to resolve a dispute with a homeowner that could escalate to litigation. The HOA must ensure that it acts reasonably in its efforts to offer the homeowner the opportunity to participate in the statutorily required ADR process. The HOA’s Board should seek the assistance of its legal counsel who can provide guidance based on the unique circumstances of the dispute and the conduct of the offending homeowner.

To submit questions to the HOA attorneys at Tinnelly Law Group, click here.

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*New Case Lawhoa_law_adr_attorneys_fees_recovering_california.jpg

In our recent blog post entitled “Are Attorney’s Fees for ADR Recoverable?” we touched briefly on the recently decided case of Grossman v. Park Fort Washington Association (2012) 212 Cal. App. 4th 1128 (“Grossman”). In response to requests for more information on this issue from our clients and industry partners, we felt it necessary to further address the reasoning behind the court’s ruling in Grossman.

In Grossman, a dispute between a homeowners association (“HOA”) and a homeowner relating to a claimed architectural violation was resolved by the trial court in favor of the homeowners. In awarding the homeowners attorney’s fees and costs arising from both pre and post-litigation activities, the trial court cited Civil Code Section 1354(c), which states that “[i]n an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.” (Emphasis added.)

The HOA objected to the award based on its argument that the statute did not authorize awarding pre-litigation attorney’s fees (fees incurred in participating in ADR) because such fees were not incurred as part of the action (the lawsuit) to enforce the governing documents. However, the appellate court disagreed with the HOA and ultimately affirmed the ruling, noting several key points…

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*Asked & AnsweredADR california hoa law litigation.jpg

Asked – Are our HOA’s attorney’s fees recoverable when we participate in ADR with a homeowner?

Answered – Maybe. Civil Code §1354(c) states that “in an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.” Alternative Dispute Resolution (“ADR”) does not technically constitute an “action” as contemplated by Civil Code §1354(c). When a homeowners association (“HOA”) and a homeowner agree to participate in ADR, Civil Code §1369.540(c) states that “the costs of [ADR] shall be borne by the parties.” Accordingly, each side pays its own attorney’s fees, and the mediation fees/costs are split between the parties unless the parties negotiate a different arrangement.

However, if the ADR results in a settlement of the dispute, then the attorney’s fees are allocated according to the settlement terms. If the ADR does not result in a settlement and a lawsuit ensues, then the “prevailing party” in the resulting lawsuit may recover its pre-litigation attorney’s fees incurred for ADR. In the recent case of Grossman v. Park Fort Washington Association (2012) 212 Cal. App. 4th 1128, the prevailing party (the homeowners) were awarded their attorneys’ fees incurred in pre-litigation ADR:

“…[B]ecause the Legislature has required ADR, a party acts reasonably when it spends money on attorney fees and costs during pre-litigation ADR. The alternate view–that such expenditures are categorically unreasonable–is contrary to the strong public policy of promoting the resolution of disputes through mediation and arbitration…Thus, when attorney fees and costs expended in pre-litigation ADR satisfy the other criteria of reasonableness, those fees and costs may be recovered in an action to enforce the governing documents of a common interest development.” Grossman.

hoa attorney

Attorney’s fees incurred in ADR are typically not recoverable absent language to that effect in the terms of the ADR settlement. However, if no settlement is reached and a lawsuit ensues, the public policy factors recognized by the court in Grossman suggest that these attorney’s fees should be recovered by the prevailing party (e.g., the HOA) in the lawsuit.

Content provided by Tinnelly Law Group attorney Bruce Kermott

To submit questions to the HOA attorneys at Tinnelly Law Group, click here.

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hoa lawsOur annual “Legislative & Case Law Update” newsletter for the year 2013 is now available in our library!

The Legislative & Case Law Update provides an overview of the new legislation and case law impacting California Homeowners Associations (“HOAs”) as we head into 2013. The new legislation includes, among other items, bills that impact Bank foreclosures, the re-organization of the Davis-Stirling Act, EV Charging Stations and fees charged by HOAs in producing certain records. The new case law includes rulings that may impact the architectural restrictions placed on the installation of solar panels, arbitration provisions for construction defect disputes, “no-cost” HOA collections contracts, election disputes and defamation claims. The Legislative & Case Law Update also addresses some new Fannie Mae and FHA regulations impacting condominium insurance and certification requirements.

Click here to read our Legislative & Case Law Update (2013)

Have questions on any of the new legislation or case law? Click here to send us a question online.

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*New Case Lawhoa law firm

On August 16, 2012 the California Supreme Court announced its decision in a case that will undoubtedly impact homeowners associations (“HOAs”), developers, owners and insurers in disputes arising from construction defects. The ruling in Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC sets the stage for construction defect disputes to be resolved via binding arbitration as opposed to jury trials.

The Court’s ruling in Pinnacle reverses the lower courts’ decisions which previously hampered the enforceability of arbitration provisions contained in recorded Declarations of Covenants, Conditions and Restrictions (“CC&Rs”). Central to the Court’s ruling was its recognition that CC&Rs constitute a contract and that there is strong public policy favoring arbitration/alternative dispute resolution over litigation–a public policy which is embodied in various Civil Code provisions pertaining to HOAs.

In reaching its conclusion, the Court reasoned that “the Davis-Stirling Act ensures that [CC&Rs]–which manifest the intent and expectations of the developer and those who take title to property in a [HOA]–will be honored and enforced unless proven unreasonable. Here, the expectation of all concerned is that construction disputes involving the developer must be resolved by the expeditious and judicially favored method of binding arbitration.” Accordingly, unless an arbitration provision contained in the CC&Rs is deemed “unreasonable,” a developer is entitled to rely on the terms of the contract and the enforcement of the arbitration provision.

california hoa

The ruling in Pinnacle will create far-reaching and immediate impacts in the HOA industry. Depending on the terms of the CCRs, HOAs and owners seeking to pursue claims against the original developer may now be contractually obligated to forego litigation for binding arbitration. However, Developers wishing to compel binding arbitration may be precluded from doing so to the extent that the binding arbitration provision at issue fails to meet the “reasonableness” test implied by the Court.

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Arbitration provisions contained in a developer’s recorded CC&Rs are held not to be binding contractual terms…

Our recent blog post titled “Enforceability of Arbitration Provisions in Disputes with Developers” discussed the 2010 case of Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, 187 Cal.App.4th 24 (2010). In Pinnacle, the court held that binding arbitration provisions contained in a recorded declaration of covenants, conditions and restrictions (CC&Rs) are not enforceable against a Homeowners Association (HOA) in a dispute between the HOA and the developer. Pinnacle is up for review by the California Supreme Court; however, if it stands it will effectively invalidate most binding arbitration provisions contained in CC&Rs with respect to HOA Disputes with developers.

The even more recent case of Villa Vicenza Homeowners Association v. Nobel Court Development LLC, 2011 WL 72200 (2011) (Nobel) may serve to expand the holding in Pinnacle. In Nobel, the CC&Rs required condominium owners and the Association to arbitrate any claims they had against the developer. After buyers noticed defects in common areas and facilities, the Association filed suit against the developer. The developer’s motion to compel arbitration under the CC&Rs was denied by the trial court and the developer appealed.

In affirming the trial court’s decision, the appellate court in Nobel asserted that CC&Rs cannot be used as means for creating any continuing contractual rights between the developer of common interest developments and either a HOA or the individual homeowners. The ruling in Pinnacle did not go so far as to also render binding arbitration provisions invalid as to individual homeowners.

The court in Nobel concluded that CC&Rs, which are equitable servitudes under California Civil Code Section 1354, did not constitute contracts to provide non-owners, such as the developer, continuing and irrevocable benefits.

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These rulings could significantly impact both a HOA’s and an individual unit owner’s ability to bring suit against the developer despite binding arbitration provisions contained in the recorded CC&Rs. The force of these ruling, however, hinge on the determination to be made by the California Supreme Court in its review of Pinnacle.

To read the full text of Nobel, click here.
To read the full text of Pinnacle, click here.