“Electronic transmission to the corporation” means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, which the corporation has provided from time to time to shareholders or members and directors for sending communications to the corporation, (2) posting on an electronic message board or network which the corporation has designated for those communications, and which transmission shall be validly delivered upon the posting, or (3) other means of electronic communication, (b) as to which the corporation has placed in effect reasonable measures to verify that the sender is the shareholder or member (in person or by proxy) or director purporting to send the transmission, and (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.
All posts by Steve Tinnelly
Corporations Code Section 20. “Electronic Transmission” by Corporation.
“Electronic transmission by the corporation” means a communication (a) delivered by (1) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail address, respectively, for that recipient on record with the corporation, (2) posting on an electronic message board or network which the corporation has designated for those communications, together with a separate notice to the recipient of the posting, which transmission shall be validly delivered upon the later of the posting or delivery of the separate notice thereof, or (3) other means of electronic communication, (b) to a recipient who has provided an unrevoked consent to the use of those means of transmission for communications under or pursuant to this code, and (c) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form. However, an electronic transmission under this code by a corporation to an individual shareholder or member of the corporation who is a natural person, and if an officer or director of the corporation, only if communicated to the recipient in that person’s capacity as a shareholder or member, is not authorized unless, in addition to satisfying the requirements of this section, the consent to the transmission has been preceded by or includes a clear written statement to the recipient as to (a) any right of the recipient to have the record provided or made available on paper or in nonelectronic form, (b) whether the consent applies only to that transmission, to specified categories of communications, or to all communications from the corporation, and (c) the procedures the recipient must use to withdraw consent.
Friars Village Homeowners Assn. v. Hansing
(2013) 220 Cal. App. 4th 405
[Election Rules; Director Qualifications] Court upheld association’s authority to adopt election rules which prohibited closely-related members from being nominated to serve as directors.
Charles I. Hansing, in pro. per., for Plaintiff, Defendant and Appellant.
Community Legal Advisors Inc., Mark T. Guithues and Edward W. Burns, for Plaintiff, Defendant and Respondent.
HUFFMAN, Acting P. J.
OPINION
This appeal arises from a judgment issued after a bench trial in these two consolidated cases, on a stipulated record, (1) granting declaratory relief at the request of a homeowners association of a common interest development, that an election rule it adopted is valid and enforceable; and (2) denying an owner’s request in his small claims case to challenge that rule as inconsistent with the development’s governing documents.
Plaintiff, defendant and appellant Charles I. Hansing is an owner of two units, together with his wife (not a party to this action), in the Friars Village common interest development, and they reside in one unit and are members of its homeowners association (Association), the plaintiff, defendant and respondent in this case. The development is subject to the provisions of the Davis-Stirling Common Interest Development Act (the Act), which establishes standards for [409] governance of such associations. (Civ. Code,[1] § 1350 et seq.) The Association operates under amended articles of incorporation and bylaws (“governing documents”), which specify that residents and members of the Association in good standing may be nominated for or nominate themselves for office on the board of directors (the Board).
Through its nine-member Board, the Association enacted an operating rule in the rules for elections and voting, that prevents a person from seeking a position on the Board, if that prospective candidate is related by blood or marriage to any current Board member, or to any current candidate for such office. (Rule 3.2.2(e) (the relationship rule).)[2]
According to Hansing, the adoption of this relationship rule violates his right as a homeowner to nominate himself to the Board, a right to self-nomination that is arguably guaranteed by section 1363.03, subdivision (a)(3) of the Act (hereafter § 1363.03(a)(3)). In toto, § 1363.03(a)(3) requires the Association to specify the qualifications for candidates for the Board or other elected positions, and provides that such qualifications must be consistent with the governing documents. Further, it provides that “[a] nomination or election procedure shall not be deemed reasonable if it disallows any member of the Association from nominating himself or herself to the board of directors.” (§ 1363.03(a)(3).)
Hansing also contends the relationship rule violates the provisions of section 1357.100 et seq., which establish standards for operating rules for associations. “Operating rules” are regulations adopted by the Board that apply to the management and operation of the development, or to the Association’s business and affairs. (§ 1357.100.) Operating rules are enforceable and valid only if they are “not inconsistent” with governing law and the governing documents (here, amended articles of incorporation and bylaws). (§ 1357.110, subd. (c).) Hansing argues the minimal standards set forth in the Association’s governing documents (residency and membership in the Association) cannot properly be altered by an operating rule such as the relationship rule, so that the Board exceeded its authority in enacting it. (§ 1357.110, subd. (b).)
[410] On de novo review, we agree with the trial court that the Association’s board was authorized to enact the relationship rule, in light of the language of the governing documents and the relevant statutes.
I
INTRODUCTION AND LITIGATION
Pursuant to its obligations under the governing documents, the Association’s Board enacted operating rules for the management and operation of the development, and for the conduct of the business and affairs of the Association. (§ 1357.100, subd. (a).) These include a set of rules for elections and voting, adopted in 2006. Section 3.0 et seq. of these rules deals with the qualifications and nominations of directors and repeats the requirement that a Board director shall be a member of the Association and resident of the development, who is in good standing with respect to payment of assessments and other obligations. Nominations for the Board may be made by a nominating committee, from the floor at the annual meeting, or by self-nomination.
As relevant here, rule 3.2.2 was amended in 2009, to add the relationship rule as its subdivision (e). Hansing’s wife, also an Association member and resident, was then serving as a member of the Board. In a letter dated September 3, 2010, Hansing requested that the Board place his name on the slate for Board office, and he objected to the relationship rule as setting a qualification which he believed to be illegal. The Association’s counsel responded that the Board had made a policy decision to enact the rule, since the bylaws and CC&R’s were silent on the issue, and that his request would be refused.[3]
After Hansing was denied a place on the ballot, he sued the Association and some of its personnel in small claims court for damages, which he proposed to use for “properly revising and adopting an updated version of governing documents.”
The Association responded in superior court with its complaint for declaratory and injunctive relief and damages, requesting an order that Hansing [411] refrain from challenging the governing documents regarding the Board election, and abate his nuisance-like conduct. The small claims court judge transferred that case to superior court.
Hansing answered the complaint and raised numerous contentions, including the Association’s alleged failure to abide by its own standards and procedures or to show that they were fair and reasonable.
The trial court decided the matter upon a stipulated record, which included documentary exhibits and the Association’s declaration from its former Board president, Matthew Boomhower, who was in office when the relationship rule was implemented. He explained the reason for the relationship rule was to protect the Board from the possible wrongdoing of two Board members from the same household, and to prevent a situation in which two members would constitute a substantial voting bloc within the nine-member Board.
The court issued a judgment declaring the relationship rule was properly adopted, is valid, and may be enforced. The court awarded no damages and ruled against Hansing on his small claims action. No statement of decision was issued, since the request for one was untimely. Hansing appeals.
II
GOVERNING LEGAL PRINCIPLES
A. Review
On appeal, Hansing bears the burden of overcoming the presumption that an appealed judgment or order is correct. (Ekstrom v. Marquesa at Monarch Beach Homeowners Assn. (2008) 168 Cal.App.4th 1111, 1121.) “Generally, the trial court’s decision to grant or deny [declaratory or injunctive relief] will not be disturbed on appeal unless it is clearly shown its discretion was abused.” (Ibid.)
The parties do not dispute that a de novo review standard applies, since the decisive underlying facts are undisputed, raising only questions of law regarding the submitted issues. (Dolan-King v. Rancho Santa Fe Assn. (2000) 81 Cal.App.4th 965, 974 (Dolan-King I).) These questions of law are addressed de novo, on interpretation of the statutes and governing documents. (Chinn v. KMR Property Management (2008) 166 [412] Cal.App.4th 175, 186; Fourth La Costa Condominium Owners Assn. v. Seith (2008) 159 Cal.App.4th 563, 575-577 (Fourth La Costa).) When a provision can be interpreted in a manner that makes it legal, rather than unenforceable, that interpretation is preferred. (See Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1473; § 1643.)
B. Policies of the Act
As stated by the California Supreme Court, “`anyone who buys a unit in a common interest development with knowledge of its owners association’s discretionary power accepts “`”the risk that the power may be used in a way that benefits the commonality but harms the individual.”‘ [Citation.] A prospective homeowner who purchases property in a common interest development should be aware that new rules and regulations may be adopted by the homeowners association either through the board’s rulemaking power or through the association’s amendment powers.” (Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 85; see Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249, 253, 264 [adopting a rule of judicial deference to community association board maintenance-related decisionmaking].)
Where a court considers issues concerning unrecorded rules and regulations, “such unrecorded restrictions are not accorded a presumption of reasonableness, but are viewed under a straight reasonableness test `so as to “somewhat fetter the discretion of the board of directors.”‘ [Citations.] We understand this distinction to primarily impact the respective burdens of proof at trial.” (Dolan-King I, supra, 81 Cal.App.4th at p. 977.)
Association regulations are generally evaluated as “reasonable” if they are “`rationally related to the protection, preservation and proper operation of the property and the purposes of the Association as set forth in its governing instruments,’ and [are] `fair and nondiscriminatory.'” (Fourth La Costa, supra, 159 Cal.App.4th at p. 577.) An unreasonable regulation is one that is “arbitrary and capricious, violates the law or a fundamental public policy or imposes an undue burden on property. . . .” (Id. at pp. 577-578.) An “operating rule must be tethered to reasonableness,” which is defined as a standard for the development as a whole, not for an individual homeowner. (Sui v. Price (2011) 196 Cal.App.4th 933, 939 (Sui) [recently adopted parking rule did not single out the individual, offending plaintiff, and was equally applicable to all homeowners].)
[413] Where an Association sues a homeowner to enforce its CC&Rs and enacted rules, it bears the burden of showing it followed its own standards and procedures before pursuing such a remedy. It must demonstrate that its procedures were fair and reasonable, its substantive decision was made in good faith and was reasonable, and its action was not arbitrary or capricious. (Ironwood Owners Assn. IX v. Solomon (1986) 178 Cal.App.3d 766, 772; Dolan-King I, supra, 81 Cal.App.4th 965, 979.)
Under section 1357.140, subdivision (b), a homeowner may challenge an adopted rule by requesting a special membership meeting to dispute it, within 30 days of notification of the rule change. Due to an admitted lack of any record on whether this procedure was invoked or litigated here, we decline to apply any waiver principles from it, as respondent’s brief now suggests. (See Fourth La Costa, supra, 159 Cal.App.4th at p. 585 [waiver rule].)
III
APPLICATION
A. Self-Nomination Claim
Under section 1363.03(a)(3), the Association shall adopt election rules, in accordance with the procedures prescribed by section 1357.100 et seq., that do all of the following: “Specify the qualifications for candidates for the board of directors and any other elected position, and procedures for the nomination of candidates, consistent with the governing documents. A nomination or election procedure shall not be deemed reasonable if it disallows any member of the association from nominating himself or herself for election to the board of directors.” (Italics added.) The Association refers in its brief on appeal to unspecified legislative history that suggests this italicized language was mainly directed toward allowing qualified people to run for such office, even if the existing leadership at a particular development did not think such a person was “good enough” to serve.[4]
[414] Hansing wants to nominate himself to the Board and merely assumes he is “qualified” to do so, consistent with the governing documents and any appropriate rules requirements, because he is a resident and Association member in good standing. He claims any additional election restriction would be unreasonable, and since section 1363.03(a)(3) says some election procedures shall not be deemed reasonable if they interfere with self-nomination, this too must be an unreasonable rule that is not valid or enforceable. (See also § 1357.110, subd. (e) [an operating rule must be reasonable].)
Hansing’s arguments and assumptions erroneously disregard the statutory language of the same subdivision he is relying upon, which prior to the self-nomination provision, allows and requires the Association to specify board candidate “qualifications.” (§ 1363.03(a)(3).) This right of self-nomination impliedly applies to a “qualified” candidate.
By comparison to use regulations, an association’s operating or election rules are “reasonable” if they are “`rationally related to the protection, preservation and proper operation of the property and the purposes of the Association as set forth in its governing instruments,’ and [are] `fair and nondiscriminatory.'” (Fourth La Costa, supra, 159 Cal.App.4th at p. 577; Sui, supra, 196 Cal.App.4th 933, 940.)
In this election context, the Association and its Board are not only required by statute to specify Board qualifications (§ 1363.03(a)(3)), they are also given related duties by the governing documents to protect the interests of the Association, and they must act consistently with those dictates. Pursuant to the amended articles of incorporation, the Association has the primary purposes of promoting and managing a safe and healthful development and providing for the maintenance and preservation of the property. To further its purposes, the Association is given powers and privileges ordinarily allowed a corporation, to be managed by its Board.
Next, under the bylaws, the Board has certain enumerated powers and duties to manage the affairs of the Association, including adopting and publishing rules and regulations governing the use of the common area and facilities in the development, and the personal conduct of the members and guests, not inconsistent with the governing documents. The bylaws allow the Board to fill all vacancies until a successor is elected by Association members. Qualifications of board members are not further described by the bylaws.
[415] The rationales for the basic requirements in the governing documents for Board candidacy (residency and Association membership) are evidently to ensure that Board members have the necessary interests and stakes in the outcome to carry out their duties for the overall benefit of the development. The same is true of the operating rule requirement that a board candidate may not have any outstanding debts for assessments or penalties. (Advising Cal. Common Interest Communities, supra, § 2.7, pp. 52-53.) Hansing does not acknowledge the underlying purposes of those basic requirements for service as a Board member.
Pursuant to the duties and powers of the Board prescribed by the bylaws, and the purposes of the Association stated in the articles, it is reasonable to interpret section 1363.03(a)(3) to allow the Board to enact an election rule specifying this qualification for directors, in pursuit of its policy decision to minimize the chance that candidates for office might have a potential conflict of interest, such as when married persons or related persons seek to serve together on the Board and conduct its business, possibly in their own favor. Such a qualification rule is consistent with the interests of the Association as outlined in the governing documents. The provisions of section 1363.03(a)(3), regarding self-nomination, grant no additional protections to an otherwise unqualified or disqualified candidate.
B. Scope of Board’s Authority to Enact Rules
“Operating rules” are regulations adopted by the Board that apply to the management and operation of the development or to the business and affairs of the Association. (§ 1357.100, subd. (a).) According to Hansing, the relationship rule was enacted in excess of the Board’s power, because it is inconsistent with law and the governing documents.
Of the five provisions in section 1357.110 which set forth requirements for the validity and enforceability of an operating rule, Hansing focuses mainly on subdivisions (b) and (c) (and does not dispute that the rule is in writing, as subd. (a) requires). Under section 1357.110, subdivision (b), an operating rule must be “within the authority of the board of directors of the association conferred by law or by the [governing documents].” Likewise, under section 1357.110, subdivision (c), an operating rule is enforceable and valid only if it is “not inconsistent with governing law” and the governing documents.
Hansing also seems to argue that section 1357.110, subdivision (d) was violated (i.e., that the rule was NOT adopted or amended “in good faith and in substantial compliance with the requirements of this article”), and/or that section 1357.110, subdivision (e) was not complied with (i.e., the rule is NOT reasonable). Overall, he claims the relationship rule is invalid because it [416] amounted to the Board’s attempted amendment of the governing documents, to further restrict them, whereas any such amendment of the articles and the bylaws would have required membership approval by the Association, not just Board approval. (See Rancho Santa Fe Association v. Dolan-King (2004) 115 Cal.App.4th 28, 37; MaJor v. Miraverde Homeowners Association (1992) 7 Cal.App.4th 618, 627.)
In response, the Association says its Board can “augment” the provisions of the governing documents, and it is not “inconsistent” to add this Board qualification, based upon its assertedly legitimate policy reasons, such as the avoidance of spouses’ or relatives’ potential conflicts of interest regarding Board business.
As we read this record, the relationship rule is “not inconsistent’ with governing law and the governing documents, in light of its asserted purpose and effect. (§ 1357.110, subd. (c).) Nor, under section 1357.110, subdivision (b), does it exceed the authority of the Board, as that is conferred by law or governing documents, to make rules about candidacy for Board office that are intended to improve and are reasonably related to the performance of the Board and will serve to protect its overall mission — protecting the best interests of the Association. Elections of Board directors are clearly important elements of the business and affairs of the Association as a whole, and this relationship rule passes the test of “reasonableness,” as “`rationally related to the protection, preservation and proper operation of the property and the purposes of the Association as set forth in its governing instruments,’ [and] `fair and nondiscriminatory.'” (Fourth La Costa, supra, 159 Cal.App.4th at p. 577; Sui, supra, 196 Cal.App.4th 933, 940.)
Accordingly, the Board was granted the statutory power to adopt rules about the management and operation of the development, and “the conduct of the business and affairs of the association.” (§ 1357.100, subd. (a).) The record supports a conclusion that the relationship rule was a legitimate response to business concerns among Association members that allowing a voting bloc on the Board would not be in the best interests of the Association. The Board’s policy decision to enact the relationship rule constitutes a reasonable attempt to balance the respective interests, and is “consistent” with the nature of the specific requirements in the governing documents and other rules, i.e., residency and membership in good standing in the Association. Such requirements legitimately promote the ability of the Board members to impartially conduct the business affairs of the development. We agree with the trial court’s conclusions of law that the relationship rule is valid, enforceable and not inconsistent with the governing documents.
[417] DISPOSITION
Affirmed. Costs are awarded to Respondent.
NARES, J. and AARON, J., concurs.
ORDER CERTIFYING OPINION FOR PUBLICATION
THE COURT:
The opinion filed September 20, 2013, is ordered certified for publication.
[1] All further statutory references are to the Civil Code unless otherwise indicated.
[2] These parties refer to the relationship rule as the “anti-nepotism rule.” Black’s Law Dictionary (9th ed. 2009) at page 1138, column 2, defines nepotism as “bestowal of official favors on one’s relatives, especially in hiring.” Merriam-Webster’s Collegiate Dictionary (11th ed. 2006) at page 831, column 2, defines nepotism as “favoritism (as in appointment to a job based on kinship).” We designate the contested rule simply as the relationship rule.
[3] The development is subject to a declaration of covenants, conditions and restrictions (CC&R’s), which is not in the appellate record. At times, trial counsel for the Association seemed to use the term CC&R’s as synonymous with the Association’s amended articles of incorporation. We need only discuss the terms of the amended articles of incorporation and bylaws, and we granted Hansing’s request to augment the record to include full copies of them.
[4] Under section 1363.03, subdivision (n), if this section conflicts with the provisions of the Nonprofit Mutual Benefit Corporation Law (Corp. Code, § 7110 et seq., relating to elections), the provisions of this section in the Act shall prevail. No arguments are raised about any such conflict. Further, director eligibility requirements are discussed in a practice guide in this area, which suggests that Corporations Code section 7151, subdivision (c)(3) permits corporate bylaws to specify the qualifications of directors, and that such provisions are impliedly valid and may legitimately restrict the right to be a candidate for election to such a board. (Advising Cal. Common Interest Communities (Cont.Ed.Bar 2012) § 2.7, pp. 52-53.)
Government Code Section 66610. Jurisdiction of San Francisco Bay Conservation and Development Commission.
For the purposes of this title, the area of jurisdiction of the San Francisco Bay Conservation and Development Commission includes:
(a) San Francisco Bay, being all areas that are subject to tidal action from the south end of the bay to the Golden Gate (Point Bonita-Point Lobos) and to the Sacramento River line (a line between Stake Point and Simmons Point, extended northeasterly to the mouth of Marshall Cut), including all sloughs, and specifically, the marshlands lying between mean high tide and five feet above mean sea level; tidelands (land lying between mean high tide and mean low tide); and submerged lands (land lying below mean low tide).
(b) A shoreline band consisting of all territory located between the shoreline of San Francisco Bay as defined in subdivision (a) of this section and a line 100 feet landward of and parallel with that line, but excluding any portions of such territory which are included in subdivisions (a), (c) and (d) of this section; provided that the commission may, by resolution, exclude from its area of jurisdiction any area within the shoreline band that it finds and declares is of no regional importance to the bay.
(c) Saltponds consisting of all areas which have been diked off from the bay and have been used during the three years immediately preceding the effective date of the amendment of this section during the 1969 Regular Session of the Legislature for the solar evaporation of bay water in the course of salt production.
(d) Managed wetlands consisting of all areas which have been diked off from the bay and have been maintained during the three years immediately preceding the effective date of the amendment of this section during the 1969 Regular Session of the Legislature as a duck hunting preserve, game refuge or for agriculture.
(e) Certain waterways (in addition to areas included within subdivision (a)), consisting of all areas that are subject to tidal action, including submerged lands, tidelands, and marshlands up to five feet above mean sea level, on, or tributary to, the listed portions of the following waterways:
(1) Plummer Creek in Alameda County, to the eastern limit of the saltponds.
(2) Coyote Creek (and branches) in Alameda and Santa Clara
Counties, to the easternmost point of Newby Island.
(3) Redwood Creek in San Mateo County, to its confluence with Smith Slough.
(4) Tolay Creek in Sonoma County, to the northerly line of Sears Point Road (State Highway 37).
(5) Petaluma River in Marin and Sonoma Counties to its confluence with Adobe Creek, and San Antonio Creek to the easterly line of the Northwestern Pacific Railroad right-of-way.
(6) Napa River, to the northernmost point of Bull Island.
(7) Sonoma Creek, to its confluence with Second Napa Slough.
(8) Corte Madera Creek in Marin County to the downstream end of the concrete channel on Corte Madera Creek which is located at the United States Army Corps of Engineers Station No. 318+50 on the Corte Madera Creek Flood Control Project.
The definition which is made by this section is merely for the purpose of prescribing the area of jurisdiction of the commission which is created by this title. This definition shall not be construed to affect title to any land or to prescribe the boundaries of the San Francisco Bay for any purpose except the authority of the commission created by this title.
The jurisdiction of the commission under this section shall not extend to the areas commonly known as the Larkspur and Greenbrae Boardwalks in the County of Marin, such areas to be defined by commission regulation.
Reimbursement & Compliance Assessments
Reimbursement assessments (aka “compliance assessments”) refer to special assessments levied against an individual owner’s separate interest to reimburse the association for its costs incurred in repairing damage to the common area caused by that owner, his guest or tenant. Reimbursement assessments are distinct from fines (monetary penalties), as the imposition of a fine is not necessarily tied to any costs incurred by the association as a result of an owner’s violation. (See “Fines (Monetary Penalties).”)
Where an association’s CC&Rs do not contain provisions directly allowing for the imposition of reimbursement assessments, many HOA attorneys take the position that Civil Code Section 5725(a) impliedly allows the board to impose them in the form of monetary charges. However, the degree to which such a reimbursement assessment may then become a lien against the owner’s separate interest and enforced through foreclosure will be dictated by the governing documents. (See Civ. Code § 5725(a).) When foreclosure is not authorized, collecting an unpaid reimbursement assessment may require the association to file a lawsuit against the owner in order to obtain a money judgment.
Procedural Requirements
Civil Code Section 5855 contains procedural requirements that must be satisfied before a reimbursement assessment imposed upon a member becomes effective. Those requirements include:
- Notice and Meeting (Hearing). The board must provide the member with individual notice of the meeting (hearing) where the board is to consider imposing the reimbursement assessment, at least ten (10) days prior to the meeting. (Civ. Code § 5855(a).) The notice must contain, “at a minimum, the date, time and place of the meeting…the nature of the damage to the common area and facilities for which the [reimbursement assessment] may be imposed, and a statement that the member has a right to attend and may address the board at the meeting.” (Civ. Code § 5855(b).) The board must meet with the member in executive session if requested by the member. (Civ. Code § 5855(b).)
- Notice of Decision. If the board imposes the reimbursement assessment, the board must, within fifteen (15) days following the action, “provide the member with a written notification of the decision, by either personal delivery or individual delivery pursuant to Section 4040.” (Civ. Code § 5855(c).)
**For more information on these procedural requirements, see “Notice & Hearing Requirements.”
Davis-stirling Act
Civil Code Section 6150. Notice of Civil Action Against Declarant.
(a) Not later than 30 days before filing of any civil action by the association against the declarant or other developer of a common interest development for alleged damage to the common areas, alleged damage to the separate interests that the association is obligated to maintain or repair, or alleged damage to the separate interests that arises out of, or is integrally related to, damage to the common areas or separate interests that the association is obligated to maintain or repair, the board shall provide a written notice to each member of the association who appears on the records of the association when the notice is provided. This notice shall specify all of the following:
(1) That a meeting will take place to discuss problems that may lead to the filing of a civil action, in addition to the potential impacts thereof to the association and its members, including any financial impacts.
(2) The options, including civil actions, that are available to address the problems.
(3) The time and place of the meeting.
(b) Notwithstanding subdivision (a), if the association has reason to believe that the applicable statute of limitations will expire before the association files the civil action, the association may give the notice, as described above, within 30 days after the filing of the action.
Related Links
SB 326 Signed! Balconies, Branches, and Builder Defect Actions – Published on HOA Lawyer Blog (October 2019)
Davis-stirling Act
Civil Code Section 6100. Notice of Settlement Agreement.
(a) As soon as is reasonably practicable after the association and the builder have entered into a settlement agreement or the matter has otherwise been resolved regarding alleged defects in the common areas, alleged defects in the separate interests that the association is obligated to maintain or repair, or alleged defects in the separate interests that arise out of, or are integrally related to, defects in the common areas or separate interests that the association is obligated to maintain or repair, where the defects giving rise to the dispute have not been corrected, the association shall, in writing, inform only the members of the association whose names appear on the records of the association that the matter has been resolved, by settlement agreement or other means, and disclose all of the following:
(1) A general description of the defects that the association reasonably believes, as of the date of the disclosure, will be corrected or replaced.
(2) A good faith estimate, as of the date of the disclosure, of when the association believes that the defects identified in paragraph (1) will be corrected or replaced. The association may state that the estimate may be modified.
(3) The status of the claims for defects in the design or construction of the common interest development that were not identified in paragraph (1) whether expressed in a preliminary list of defects sent to each member of the association or otherwise claimed and disclosed to the members of the association.
(b) Nothing in this section shall preclude an association from amending the disclosures required pursuant to subdivision (a), and any amendments shall supersede any prior conflicting information disclosed to the members of the association and shall retain any privilege attached to the original disclosures.
(c) Disclosure of the information required pursuant to subdivision (a) or authorized by subdivision (b) shall not waive any privilege attached to the information.
(d) For the purposes of the disclosures required pursuant to this section, the term “defects”shall be defined to include any damage resulting from defects.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)
Davis-stirling Act
Civil Code Section 6000. Construction Defect; Pre-Litigation Procedures.
(a) Before an association files a complaint for damages against a builder, developer, or general contractor (respondent) of a common interest development based upon a claim for defects in the design or construction of the common interest development, all of the requirements of this section shall be satisfied with respect to the builder, developer, or general contractor.
(b) The association shall serve upon the respondent a “Notice of Commencement of Legal Proceedings.” The notice shall be served by certified mail to the registered agent of the respondent, or if there is no registered agent, then to any officer of the respondent. If there are no current officers of the respondent, service shall be upon the person or entity otherwise authorized by law to receive service of process. Service upon the general contractor shall be sufficient to initiate the process set forth in this section with regard to any builder or developer, if the builder or developer is not amenable to service of process by the foregoing methods. This notice shall toll all applicable statutes of limitation and repose, whether contractual or statutory, by and against all potentially responsible parties, regardless of whether they were named in the notice, including claims for indemnity applicable to the claim for the period set forth in subdivision (c). The notice shall include all of the following:
(1) The name and location of the project.
(2) An initial list of defects sufficient to apprise the respondent of the general nature of the defects at issue.
(3) A description of the results of the defects, if known.
(4) A summary of the results of a survey or questionnaire distributed to homeowners to determine the nature and extent of defects, if a survey has been conducted or a questionnaire has been distributed.
(5) Either a summary of the results of testing conducted to determine the nature and extent of defects or the actual test results, if that testing has been conducted.
(c) Service of the notice shall commence a period, not to exceed 180 days, during which the association, the respondent, and all other participating parties shall try to resolve the dispute through the processes set forth in this section. This 180-day period may be extended for one additional period, not to exceed 180 days, only upon the mutual agreement of the association, the respondent, and any parties not deemed peripheral pursuant to paragraph (3) of subdivision (e). Any extensions beyond the first extension shall require the agreement of all participating parties. Unless extended, the dispute resolution process prescribed by this section shall be deemed completed. All extensions shall continue the tolling period described in subdivision (b).
(d) Within 25 days of the date the association serves the Notice of Commencement of Legal Proceedings, the respondent may request in writing to meet and confer with the board. Unless the respondent and the association otherwise agree, there shall be not more than one meeting, which shall take place no later than 10 days from the date of the respondent’s written request, at a mutually agreeable time and place. The meeting shall be subject to subdivision (a) of Section 4925 and subdivisions (a) and (b) of Section 4935. The discussions at the meeting are privileged communications and are not admissible in evidence in any civil action, unless the association and the respondent consent in writing to their admission.
(e) Upon receipt of the notice, the respondent shall, within 60 days, comply with the following:
(1) The respondent shall provide the association with access to, for inspection and copying of, all plans and specifications, subcontracts, and other construction files for the project that are reasonably calculated to lead to the discovery of admissible evidence regarding the defects claimed. The association shall provide the respondent with access to, for inspection and copying of, all files reasonably calculated to lead to the discovery of admissible evidence regarding the defects claimed, including all reserve studies, maintenance records and any survey questionnaires, or results of testing to determine the nature and extent of defects. To the extent any of the above documents are withheld based on privilege, a privilege log shall be prepared and submitted to all other parties. All other potentially responsible parties shall have the same rights as the respondent regarding the production of documents upon receipt of written notice of the claim, and shall produce all relevant documents within 60 days of receipt of the notice of the claim.
(2) The respondent shall provide written notice by certified mail to all subcontractors, design professionals, their insurers, and the insurers of any additional insured whose identities are known to the respondent or readily ascertainable by review of the project files or other similar sources and whose potential responsibility appears on the face of the notice. This notice to subcontractors, design professionals, and insurers shall include a copy of the Notice of Commencement of Legal Proceedings, and shall specify the date and manner by which the parties shall meet and confer to select a dispute resolution facilitator pursuant to paragraph (1) of subdivision (f), advise the recipient of its obligation to participate in the meet and confer or serve a written acknowledgment of receipt regarding this notice, advise the recipient that it will waive any challenge to selection of the dispute resolution facilitator if it elects not to participate in the meet and confer, advise the recipient that it may seek the assistance of an attorney, and advise the recipient that it should contact its insurer, if any. Any subcontractor or design professional, or insurer for that subcontractor, design professional, or additional insured, who receives written notice from the respondent regarding the meet and confer shall, prior to the meet and confer, serve on the respondent a written acknowledgment of receipt. That subcontractor or design professional shall, within 10 days of service of the written acknowledgment of receipt, provide to the association and the respondent a Statement of Insurance that includes both of the following:
(A) The names, addresses, and contact persons, if known, of all insurance carriers, whether primary or excess and regardless of whether a deductible or self-insured retention applies, whose policies were in effect from the commencement of construction of the subject project to the present and which potentially cover the subject claims.
(B) The applicable policy numbers for each policy of insurance provided.
(3) Any subcontractor or design professional, or insurer for that subcontractor, design professional, or additional insured, who so chooses, may, at any time, make a written request to the dispute resolution facilitator for designation as a peripheral party. That request shall be served contemporaneously on the association and the respondent. If no objection to that designation is received within 15 days, or upon rejection of that objection, the dispute resolution facilitator shall designate that subcontractor or design professional as a peripheral party, and shall thereafter seek to limit the attendance of that subcontractor or design professional only to those dispute resolution sessions deemed peripheral party sessions or to those sessions during which the dispute resolution facilitator believes settlement as to peripheral parties may be finalized. Nothing in this subdivision shall preclude a party who has been designated a peripheral party from being reclassified as a nonperipheral party, nor shall this subdivision preclude a party designated as a nonperipheral party from being reclassified as a peripheral party after notice to all parties and an opportunity to object. For purposes of this subdivision, a peripheral party is a party having total claimed exposure of less than twenty-five thousand dollars ($25,000).
(f)
(1) Within 20 days of sending the notice set forth in paragraph (2) of subdivision (e), the association, respondent, subcontractors, design professionals, and their insurers who have been sent a notice as described in paragraph (2) of subdivision (e) shall meet and confer in an effort to select a dispute resolution facilitator to preside over the mandatory dispute resolution process prescribed by this section. Any subcontractor or design professional who has been given timely notice of this meeting but who does not participate, waives any challenge he or she may have as to the selection of the dispute resolution facilitator. The role of the dispute resolution facilitator is to attempt to resolve the conflict in a fair manner. The dispute resolution facilitator shall be sufficiently knowledgeable in the subject matter and be able to devote sufficient time to the case. The dispute resolution facilitator shall not be required to reside in or have an office in the county in which the project is located. The dispute resolution facilitator and the participating parties shall agree to a date, time, and location to hold a case management meeting of all parties and the dispute resolution facilitator, to discuss the claims being asserted and the scheduling of events under this section. The case management meeting with the dispute resolution facilitator shall be held within 100 days of service of the Notice of Commencement of Legal Proceedings at a location in the county where the project is located. Written notice of the case management meeting with the dispute resolution facilitator shall be sent by the respondent to the association, subcontractors and design professionals, and their insurers who are known to the respondent to be on notice of the claim, no later than 10 days prior to the case management meeting, and shall specify its date, time, and location. The dispute resolution facilitator in consultation with the respondent shall maintain a contact list of the participating parties.
(2) No later than 10 days prior to the case management meeting, the dispute resolution facilitator shall disclose to the parties all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed dispute resolution facilitator would be able to resolve the conflict in a fair manner. The facilitator’s disclosure shall include the existence of any ground specified in Section 170.1 of the Code of Civil Procedure for disqualification of a judge, any attorney-client relationship the facilitator has or had with any party or lawyer for a party to the dispute resolution process, and any professional or significant personal relationship the facilitator or his or her spouse or minor child living in the household has or had with any party to the dispute resolution process. The disclosure shall also be provided to any subsequently noticed subcontractor or design professional within 10 days of the notice.
(3) A dispute resolution facilitator shall be disqualified by the court if he or she fails to comply with this subdivision and any party to the dispute resolution process serves a notice of disqualification prior to the case management meeting. If the dispute resolution facilitator complies with this subdivision, he or she shall be disqualified by the court on the basis of the disclosure if any party to the dispute resolution process serves a notice of disqualification prior to the case management meeting.
(4) If the parties cannot mutually agree to a dispute resolution facilitator, then each party shall submit a list of three dispute resolution facilitators. Each party may then strike one nominee from the other parties’ list, and petition the court, pursuant to the procedure described in subdivisions (n) and (o), for final selection of the dispute resolution facilitator. The court may issue an order for final selection of the dispute resolution facilitator pursuant to this paragraph.
(5) Any subcontractor or design professional who receives notice of the association’s claim without having previously received timely notice of the meet and confer to select the dispute resolution facilitator shall be notified by the respondent regarding the name, address, and telephone number of the dispute resolution facilitator. Any such subcontractor or design professional may serve upon the parties and the dispute resolution facilitator a written objection to the dispute resolution facilitator within 15 days of receiving notice of the claim. Within seven days after service of this objection, the subcontractor or design professional may petition the superior court to replace the dispute resolution facilitator. The court may replace the dispute resolution facilitator only upon a showing of good cause, liberally construed. Failure to satisfy the deadlines set forth in this subdivision shall constitute a waiver of the right to challenge the dispute resolution facilitator.
(6) The costs of the dispute resolution facilitator shall be apportioned in the following manner: one-third to be paid by the association; one-third to be paid by the respondent; and one-third to be paid by the subcontractors and design professionals, as allocated among them by the dispute resolution facilitator. The costs of the dispute resolution facilitator shall be recoverable by the prevailing party in any subsequent litigation pursuant to Section 1032 of the Code of Civil Procedure, provided however that any nonsettling party may, prior to the filing of the complaint, petition the facilitator to reallocate the costs of the dispute resolution facilitator as they apply to any nonsettling party. The determination of the dispute resolution facilitator with respect to the allocation of these costs shall be binding in any subsequent litigation. The dispute resolution facilitator shall take into account all relevant factors and equities between all parties in the dispute resolution process when reallocating costs.
(7) In the event the dispute resolution facilitator is replaced at any time, the case management statement created pursuant to subdivision (h) shall remain in full force and effect.
(8) The dispute resolution facilitator shall be empowered to enforce all provisions of this section.
(g)
(1) No later than the case management meeting, the parties shall begin to generate a data compilation showing the following information regarding the alleged defects at issue:
(A) The scope of the work performed by each potentially responsible subcontractor.
(B) The tract or phase number in which each subcontractor provided goods or services, or both.
(C) The units, either by address, unit number, or lot number, at which each subcontractor provided goods or services, or both.
(2) This data compilation shall be updated as needed to reflect additional information. Each party attending the case management meeting, and any subsequent meeting pursuant to this section, shall provide all information available to that party relevant to this data compilation.
(h) At the case management meeting, the parties shall, with the assistance of the dispute resolution facilitator, reach agreement on a case management statement, which shall set forth all of the elements set forth in paragraphs (1) to (8), inclusive, except that the parties may dispense with one or more of these elements if they agree that it is appropriate to do so. The case management statement shall provide that the following elements shall take place in the following order:
(1) Establishment of a document depository, located in the county where the project is located, for deposit of documents, defect lists, demands, and other information provided for under this section. All documents exchanged by the parties and all documents created pursuant to this subdivision shall be deposited in the document depository, which shall be available to all parties throughout the prefiling dispute resolution process and in any subsequent litigation. When any document is deposited in the document depository, the party depositing the document shall provide written notice identifying the document to all other parties. The costs of maintaining the document depository shall be apportioned among the parties in the same manner as the costs of the dispute resolution facilitator.
(2) Provision of a more detailed list of defects by the association to the respondent after the association completes a visual inspection of the project. This list of defects shall provide sufficient detail for the respondent to ensure that all potentially responsible subcontractors and design professionals are provided with notice of the dispute resolution process. If not already completed prior to the case management meeting, the Notice of Commencement of Legal Proceedings shall be served by the respondent on all additional subcontractors and design professionals whose potential responsibility appears on the face of the more detailed list of defects within seven days of receipt of the more detailed list. The respondent shall serve a copy of the case management statement, including the name, address, and telephone number of the dispute resolution facilitator, to all the potentially responsible subcontractors and design professionals at the same time.
(3) Nonintrusive visual inspection of the project by the respondent, subcontractors, and design professionals.
(4) Invasive testing conducted by the association, if the association deems appropriate. All parties may observe and photograph any testing conducted by the association pursuant to this paragraph, but may not take samples or direct testing unless, by mutual agreement, costs of testing are shared by the parties.
(5) Provision by the association of a comprehensive demand which provides sufficient detail for the parties to engage in meaningful dispute resolution as contemplated under this section.
(6) Invasive testing conducted by the respondent, subcontractors, and design professionals, if they deem appropriate.
(7) Allowance for modification of the demand by the association if new issues arise during the testing conducted by the respondent, subcontractor, or design professionals.
(8) Facilitated dispute resolution of the claim, with all parties, including peripheral parties, as appropriate, and insurers, if any, present and having settlement authority. The dispute resolution facilitators shall endeavor to set specific times for the attendance of specific parties at dispute resolution sessions. If the dispute resolution facilitator does not set specific times for the attendance of parties at dispute resolution sessions, the dispute resolution facilitator shall permit those parties to participate in dispute resolution sessions by telephone.
(i) In addition to the foregoing elements of the case management statement described in subdivision (h), upon mutual agreement of the parties, the dispute resolution facilitator may include any or all of the following elements in a case management statement: the exchange of consultant or expert photographs; expert presentations; expert meetings; or any other mechanism deemed appropriate by the parties in the interest of resolving the dispute.
(j) The dispute resolution facilitator, with the guidance of the parties, shall at the time the case management statement is established, set deadlines for the occurrence of each event set forth in the case management statement, taking into account such factors as the size and complexity of the case, and the requirement of this section that this dispute resolution process not exceed 180 days absent agreement of the parties to an extension of time.
(k)
(1)
(A) At a time to be determined by the dispute resolution facilitator, the respondent may submit to the association all of the following:
(i) A request to meet with the board to discuss a written settlement offer.
(ii) A written settlement offer, and a concise explanation of the reasons for the terms of the offer.
(iii) A statement that the respondent has access to sufficient funds to satisfy the conditions of the settlement offer.
(iv) A summary of the results of testing conducted for the purposes of determining the nature and extent of defects, if this testing has been conducted, unless the association provided the respondent with actual test results.
(B) If the respondent does not timely submit the items required by this subdivision, the association shall be relieved of any further obligation to satisfy the requirements of this subdivision only.
(C) No less than 10 days after the respondent submits the items required by this paragraph, the respondent and the board shall meet and confer about the respondent’s settlement offer.
(D) If the board rejects a settlement offer presented at the meeting held pursuant to this subdivision, the board shall hold a meeting open to each member of the association. The meeting shall be held no less than 15 days before the association commences an action for damages against the respondent.
(E) No less than 15 days before this meeting is held, a written notice shall be sent to each member of the association specifying all of the following:
(i) That a meeting will take place to discuss problems that may lead to the filing of a civil action, and the time and place of this meeting.
(ii) The options that are available to address the problems, including the filing of a civil action and a statement of the various alternatives that are reasonably foreseeable by the association to pay for those options and whether these payments are expected to be made from the use of reserve account funds or the imposition of regular or special assessments, or emergency assessment increases.
(iii) The complete text of any written settlement offer, and a concise explanation of the specific reasons for the terms of the offer submitted to the board at the meeting held pursuant to subdivision (d) that was received from the respondent.
(F) The respondent shall pay all expenses attributable to sending the settlement offer to all members of the association. The respondent shall also pay the expense of holding the meeting, not to exceed three dollars ($3) per association member.
(G) The discussions at the meeting and the contents of the notice and the items required to be specified in the notice pursuant to subparagraph (E) are privileged communications and are not admissible in evidence in any civil action, unless the association consents to their admission.
(H) No more than one request to meet and discuss a written settlement offer may be made by the respondent pursuant to this subdivision.
(l) All defect lists and demands, communications, negotiations, and settlement offers made in the course of the prelitigation dispute resolution process provided by this section shall be inadmissible pursuant to Sections 1119 to 1124, inclusive, of the Evidence Code and all applicable decisional law. This inadmissibility shall not be extended to any other documents or communications which would not otherwise be deemed inadmissible.
(m) Any subcontractor or design professional may, at any time, petition the dispute resolution facilitator to release that party from the dispute resolution process upon a showing that the subcontractor or design professional is not potentially responsible for the defect claims at issue. The petition shall be served contemporaneously on all other parties, who shall have 15 days from the date of service to object. If a subcontractor or design professional is released, and it later appears to the dispute resolution facilitator that it may be a responsible party in light of the current defect list or demand, the respondent shall renotice the party as provided by paragraph (2) of subdivision (e), provide a copy of the current defect list or demand, and direct the party to attend a dispute resolution session at a stated time and location. A party who subsequently appears after having been released by the dispute resolution facilitator shall not be prejudiced by its absence from the dispute resolution process as the result of having been previously released by the dispute resolution facilitator.
(n) Any party may, at any time, petition the superior court in the county where the project is located, upon a showing of good cause, and the court may issue an order, for any of the following, or for appointment of a referee to resolve a dispute regarding any of the following:
(1) To take a deposition of any party to the process, or subpoena a third party for deposition or production of documents, which is necessary to further prelitigation resolution of the dispute.
(2) To resolve any disputes concerning inspection, testing, production of documents, or exchange of information provided for under this section.
(3) To resolve any disagreements relative to the timing or contents of the case management statement.
(4) To authorize internal extensions of timeframes set forth in the case management statement.
(5) To seek a determination that a settlement is a good faith settlement pursuant to Section 877.6 of the Code of Civil Procedure and all related authorities. The page limitations and meet and confer requirements specified in this section shall not apply to these motions, which may be made on shortened notice. Instead, these motions shall be subject to other applicable state law, rules of court, and local rules. A determination made by the court pursuant to this motion shall have the same force and effect as the determination of a postfiling application or motion for good faith settlement.
(6) To ensure compliance, on shortened notice, with the obligation to provide a Statement of Insurance pursuant to paragraph (2) of subdivision (e).
(7) For any other relief appropriate to the enforcement of the provisions of this section, including the ordering of parties, and insurers, if any, to the dispute resolution process with settlement authority.
(o)
(1) A petition filed pursuant to subdivision (n) shall be filed in the superior court in the county in which the project is located. The court shall hear and decide the petition within 10 days after filing. The petitioning party shall serve the petition on all parties, including the date, time, and location of the hearing no later than five business days prior to the hearing. Any responsive papers shall be filed and served no later than three business days prior to the hearing. Any petition or response filed under this section shall be no more than three pages in length.
(2) All parties shall meet with the dispute resolution facilitator, if one has been appointed and confer in person or by telephone prior to the filing of that petition to attempt to resolve the matter without requiring court intervention.
(p) As used in this section:
(1) “Association” shall have the same meaning as defined in Section 4080.
(2) “Builder” means the declarant, as defined in Section 4130.
(3) “Common interest development” shall have the same meaning as in Section 4100, except that it shall not include developments or projects with less than 20 units.
(q) The alternative dispute resolution process and procedures described in this section shall have no application or legal effect other than as described in this section.
(r) This section shall become operative on July 1, 2002, however it shall not apply to any pending suit or claim for which notice has previously been given.
(s) This section shall become inoperative on July 1, 2024, and, as of January 1, 2025, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2025, deletes or extends the dates on which it becomes inoperative and is repealed.
(Amended by Stats. 2016, Ch. 71, Sec. 1. Effective January 1, 2017. Inoperative July 1, 2024. Repealed as of January 1, 2025, by its own provisions.)
Related Links
SB 326 Signed! Balconies, Branches, and Builder Defect Actions – Published on HOA Lawyer Blog (October 2019)
Davis-stirling Act
Civil Code Section 5985. Comparative Fault; Allocation of Damages.
(a) In an action maintained by an association pursuant to subdivision (b), (c), or (d) of Section 5980, the amount of damages recovered by the association shall be reduced by the amount of damages allocated to the association or its managing agents in direct proportion to their percentage of fault based upon principles of comparative fault. The comparative fault of the association or its managing agents may be raised by way of defense, but shall not be the basis for a cross-action or separate action against the association or its managing agents for contribution or implied indemnity, where the only damage was sustained by the association or its members. It is the intent of the Legislature in enacting this subdivision to require that comparative fault be pleaded as an affirmative defense, rather than a separate cause of action, where the only damage was sustained by the association or its members.
(b) In an action involving damages described in subdivision (b), (c), or (d) of Section 5980, the defendant or cross-defendant may allege and prove the comparative fault of the association or its managing agents as a setoff to the liability of the defendant or cross-defendant even if the association is not a party to the litigation or is no longer a party whether by reason of settlement, dismissal, or otherwise.
(c) Subdivisions (a) and (b) apply to actions commenced on or after January 1, 1993.
(d) Nothing in this section affects a person’s liability under Section 1431, or the liability of the association or its managing agent for an act or omission that causes damages to another.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)
Davis-stirling Act
Civil Code Section 5980. Standing of Association in Legal Proceedings.
An association has standing to institute, defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name as the real party in interest and without joining with it the members, in matters pertaining to the following:
(a) Enforcement of the governing documents.
(b) Damage to the common area.
(c) Damage to a separate interest that the association is obligated to maintain or repair.
(d) Damage to a separate interest that arises out of, or is integrally related to, damage to the common area or a separate interest that the association is obligated to maintain or repair.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)