Arbitration (ADR/IDR)

Court of Appeal Upholds Pre-Litigation Arbitration Clause

Published on: July 2, 2019 | by Steven J. Tinnelly, Esq.

*Unpublished Opinion

We recently blogged about the importance of the the plain language of an association’s Declaration when following pre-litigation requirements to a construction defect claim. On March 18, 2019, the California Court of Appeal ruled that trial courts should not deny a homeowner of his right to submit a case to arbitration pursuant to the CC&Rs when there is a disagreement about whether the homeowner complied with the pre-litigation requirements. Instead, the dispute should be submitted to an arbitrator to make the final decision on whether the conditions precedent to arbitration have been satisfied. (See Baldwin v. Woodside 05s, LP, Case No. E06827 (Cal. Ct. App. March 18, 2019).)

In the case of Baldwin v. Woodside 05s, LP, several homeowners filed a lawsuit against a developer on construction defect claims. According to the development’s CC&Rs, homeowners were required to satisfy certain pre-litigation conditions before they were permitted to initiate lawsuits against the developers. For example, before filing a lawsuit, the CC&Rs stated that:

homeowners were required to give notice of the dispute to the developer;
homeowners were required to give the developer an opportunity to inspect and take corrective action;
the parties were permitted to agree to voluntarily mediation;
the parties were permitted to submit the dispute to binding arbitration; and
if mediation and arbitration failed, the parties were required to submit the dispute to a judicial reference.

In the Baldwin case, the homeowners did not satisfy the pre-litigation requirements. The homeowners filed a lawsuit against the developer, without providing notice or an opportunity to inspect, and then tried to compel arbitration and judicial reference through motions to the court. In response, the trial court denied both of the homeowners’ motions, and the homeowners appealed.

The Court of Appeal held that the homeowners were not permitted to appeal the trial court’s ruling in relation to their request for a judicial reference because the Code of Civil Procedure, section 906 only permits appellate courts to review verdicts that involve the merits of the case or that substantially affects the rights of a party. The Court of Appeal found that the decision to grant or deny a judicial reference does not involve the merits of a case. Therefore, the homeowners had no right to appeal and lost their opportunity to submit the matter to a judicial reference.

However, the Court of Appeal found that the trial court erred when it denied the homeowners’ motion to compel arbitration. The Court of Appeal held that while trial courts should determine whether parties agreed to be bound by an arbitration clause in the first place (i.e., the question of arbitrability), only arbitrators should rule on procedural questions, like whether a condition precedent to arbitration has been fulfilled.

Since there was no question that the Baldwin parties agreed to be bound by the arbitration provision in the CC&Rs, and the underlying construction defect claims fell within the scope of the arbitration provision, the trial court was required to grant the homeowners’ motion to compel arbitration. Although the trial court should have left the question of whether the homeowners satisfied the conditions precedent to arbitration to the arbitrators.

This case serves as a reminder that the California Supreme Court has a long-standing policy of upholding arbitration agreements. If the CC&Rs contain an arbitration provision, a homeowners association should have its legal counsel carefully review the related contractual requirements before commencing litigation in order to save significant legal fees and costs.

-Blog post authored by TLG Attorney, Sarah A. Kyriakedes, Esq.

Arbitrator Not Found to Exceed its Powers

Published on: November 6, 2018 | by Steven J. Tinnelly, Esq.

arbitration-judge It is well settled that an association’s CC&Rs (“Declaration”) establishes and controls, among other things, a board’s authority to govern an association provided that the CC&Rs do not conflict with California law and regulations (i.e., Davis-Stirling Act). In such cases, the plain language of the CC&Rs control. (Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19 Cal.App.4th 824, 829.) This was the case in Branches Neighborhood Corporation v. CalAtlantic Group, Inc. (2018), where Branches Neighborhood Corporation’s (“Association”) Declaration required the same to obtain a membership vote of fifty-one percent (51%) or more prior to the initiation of its construction defect claim (“Claim”) against CalAtlantic Group., Inc. (“Developer”).

In Branches, the Association properly followed all procedural requirements under California law in the initiation of the Claim, however, failed to obtain the prerequisite vote in accordance with its Declaration. Approximately two years after the initiation of the Claim, the Association obtained a membership vote in excess of fifty-one percent (51%), approving and ratifying the Claim. Taking into consideration these undisputed facts, the arbitrator assigned to the Claim granted Developer’s motion for summary judgment, holding that the “after the fact expression of consent cannot be transmuted into the prior consent required by the CC&Rs…when such a result would adversely impact the rights of a party to the agreement by which the CC&Rs were created…[t]he Developer is such a party.”

In its opposition to Developer’s motion to confirm the award, the Association based its argument on the theory that the arbitrator exceeded its powers under Code of Civil Procedure (“CCP”) § 1286.2(a)(4), which requires a court to vacate an arbitrator’s award if it determines that the arbitrator has exceeded its powers. Specifically, the Association argued that the arbitrator exceeded its powers by (1) depriving the Association of its unwaivable statutory right to affirmatively ratify the Claim, and (2) overriding public policy in favor of ratification. Both trial and appellate courts (collectively, “Court”) confirmed the arbitrator’s award.

The Court predicated its decision on the established foundation of the “Rule of Finality,” which in short, provides extreme deference to an arbitrator’s decision, subject to limited exceptions such as CCP § 1286.2(a)(4).

In support of its first argument, the Association provided the Court with several sections of the Davis-Stirling Act (“Act”) that provided the Association with the ability to retroactively ratify its actions, claiming that it is its “statutory right.” As such, the Association asserted that the provision in the Declaration that requires membership approval prior to the initiation of the Claim (“Provision”) is unenforceable as it waives said right. The Court quickly disposed of this argument because all the statutes mentioned by the Association provided the right to ratify only if a provision of the Act required an action to be approved by a majority vote. (See Civil Code §§ 4065, 4070.) Here, the Court found no provision of the Act that required the Association to obtain a majority vote prior to the initiation of the Claim, holding that “absent a specific requirement in the Act to hold an election, the association’s governing documents control.” Branches, at 6.

The Association then went on to argue that public policy supports its position due to the Legislature’s “clear pronouncement of public policy favoring ratification.” Branches, at 8. The Court disagreed with this proposition, stating that the Act was created to regulate the governance of homeowners associations, placing a system of checks and balances (“System”) against the Association and its board of directors (“Board”). The Court noted Civil Code § 6150 (requiring an association to provide notice to its members 30 days prior to the filing of a claim, unless such requirement would cause the statute of limitations to run) as an example of the System the Act is intended to establish. The Court found the Provision to go a “step further” by requiring the Association to obtain membership approval prior to the initiation of the Claim, as opposed to the mere requirement of providing notice of same. Id.

Retroactively approving the Claim went against public policy as it stripped Association members of their ability to “check” the authority of the Board (i.e., provide authorization to file the Claim); even if the members had the ability to disapprove the Claim, the Association would suffer damages in the form of legal costs and expenses already expended in the Claim, going further against the System, Act, and Declaration. Accordingly, the Court found no violation of public policy and thus, no violation committed by the arbitrator.

Branches emphasizes the importance of the plain language of an association’s Declaration. So long as the Declaration does not conflict with existing law (i.e., Act) and/or goes against public policy, the plain language of the Declaration controls, to which a homeowners association must strictly abide by.

It is of crucial importance for a homeowners association to thoroughly interpret, analyze and understand its authority under its governing documents, in particular, its CC&Rs, prior to the taking of any action in order to avoid unnecessary consequences. For the same reason, it is of equal importance for homeowners associations to obtain general legal counsel that specializes solely in HOA law and related matters to provide unfettered and sound legal advice from an objective perspective. Law firms that specialize in multiple areas of law (e.g., HOA and construction defect) may overlook certain provisions of an association’s governing documents and inadvertently guide associations in a direction that may prove to be detrimental, such as the outcome in Branches. For more information and guidance related to the interpretation and/or amending of CC&Rs and other governing documents, please contact us.

-Blog post authored by TLG Attorney, Andrew M. Jun, Esq.

Requesting HOA Enforcement Held to be Constitutionally Protected Activity

Published on: January 2, 2018 | by Steven J. Tinnelly, Esq.

*New Case Law

A Strategic Lawsuit Against Public Participation (or “SLAPP”) is a lawsuit brought to prevent or punish someone for exercising their First Amendment right to speak about public issues or to petition the government. In response to this abuse of the court system, California enacted Code of Civil Procedure Section 425.16, known as the “anti-SLAPP” statute. It allows a defendant against whom a SLAPP is brought to file a special motion to strike and, if granted, have the case dismissed and also recover his attorney’s fees.

In recent years we have seen situations where the anti-SLAPP statute has been triggered in homeowners association (“HOA”) disputes (i.e., statements made in connection with HOA Board elections). The 2017 case of Colyear v. Rolling Hills Community Association of Rancho Palos Verdes (9 Cal.App.5th 119) (Rolling Hills) is another example.

In Rolling Hills, the defendant homeowner, Liu, submitted an application to his HOA to invoke the HOA’s dispute resolution process against his neighbor, Colyear. Colyear refused to trim trees blocking Liu’s view, despite the fact that there was a protective covenant within the HOA’s governing documents designed to preserve views. In response, Colyear sued Liu and the HOA, alleging, among other things, that the covenant did not encumber Colyear’s property and that Liu and the HOA were wrongfully clouding title to Colyear’s property. Liu then withdrew his application and filed a special motion to strike Colyear’s claims under the anti-SLAPP statute. The trial court granted Liu’s motion.

The trial court’s ruling was affirmed on appeal. The Court of Appeals found that Liu’s application (his request for the HOA to commence enforcement efforts against Colyear) was made in furtherance of Liu’s exercise of the constitutional right of petition in connection with an issue of “public interest” under the anti-SLAPP statute. It rejected Colyear’s claims that Liu’s application was simply a private tree-trimming dispute between two (2) neighbors. Rather, it was a matter of public interest because (1) it affected the community in a manner similar to that of a governmental entity, and (2) at the time Liu submitted his application, “there was an ongoing controversy, dispute or discussion regarding the applicability of the tree-trimming covenants…and the HOA’s authority to enforce [them].”

The holding in Rolling Hills is another in a continuing trend of cases were constitutional protections have intersected with HOA law, and where HOAs have been viewed by courts as “quasi-governments.”

Attorney’s Fees are Recoverable to Enforce Settlement Agreement Reached in ADR

Published on: November 1, 2016 | by Steven J. Tinnelly, Esq.

*New Case Law

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 ›

AB 1738 Signed: HOAs Set to Incur Greater Attorney’s Fees to Resolve Member Disputes via IDR

Published on: October 14, 2014 | by Steven J. Tinnelly, Esq.

*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.

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.

HOA Legislative & Case Law Update (2014) Now Available!

Published on: January 16, 2014 | by Steven J. Tinnelly, Esq.

hoa update 2014 Our “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.

HOA Collection Procedures: Strict Compliance Required

Published on: August 12, 2013 | by Steven J. Tinnelly, Esq.

*New Case Law hoa 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…

Dealing with Homeowner Delay in ADR Scheduling

Published on: July 10, 2013 | by Steven J. Tinnelly, Esq.

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.

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.

Recovering Pre-Litigation Attorney’s Fees in HOA Disputes

Published on: March 13, 2013 | by Steven J. Tinnelly, Esq.

*New Case Law

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…

Are Attorney’s Fees for ADR Recoverable?

Published on: February 25, 2013 | by Steven J. Tinnelly, Esq.

*Asked & Answered ADR 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.

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.