Would make non-substantive changes to Code of Civil Procedure 1281.2 regarding arbitration agreements.
Current Status: Chaptered
FindHOALaw Quick Summary:
Existing law requires a court, on petition of a party to an arbitration agreement alleging (1) the existence of a written agreement to arbitrate a controversy and (2) that a party to the agreement refuses to arbitrate the controversy, to order the petitioner and the respondent to arbitrate the controversy if the court determines that an agreement to arbitrate exists, unless the court makes other determinations, including, among other things, that grounds exist for the rescission of the agreement.
**UPDATE: AB 3247 was signed by the Governor on July 16, 2018. Its changes to the law will become operative on January 1, 2019.
“Prevailing Party”
The Davis-Stirling Act does not define the term “prevailing party,” nor does it provide a metric or formula for making that determination. As a result, California Courts have “concluded that the test for prevailing party is a pragmatic one, namely whether a party prevailed on a practical level by achieving its main litigation objectives.” (Heather Farms HOA v. Robinson (1994) 21 Cal.App.4th 1568, 1574; See also “Prevailing Party & Attorney’s Fees.”)
Attorney’s Fees & Alternative Dispute Resolution (“ADR”) Neither an association nor any of its members may file an “enforcement action” (i.e., a lawsuit) in superior court unless the parties to the dispute have “endeavored” to submit their dispute to “alternative dispute resolution” (ADR) in accordance with Civil Code Section 5930. (Civ. Code § 5930(a); See also “Alternative Dispute Resolution (ADR).”) ADR is essentially mediation where the parties to a dispute (i.e., the homeowner and the HOA) utilize the services of a third-party mediator to try and come to a mutual resolution. While each party to ADR is generally required to bear its own attorney’s fees, those attorney’s fees may become recoverable in any subsequent litigation regarding the dispute or to enforce a settlement agreement that was reached by the parties in ADR. (Grossman v. Park Fort Washington Association (2012) 212 Cal. App. 4th 1128; Rancho Mirage Country Club HOA v. Hazelbaker (2016) 2 Cal.App.5th 252.)
Other Causes of Action
The following provisions of the California Civil Code and Code of Civil Procedure provide for recovery of attorney’s fees in actions that may involve associations but not necessarily relate to enforcement of an association’s governing documents:
Almanor Lakeside Villas Owners Association v. Carson
(2016) 246 Cal.App.4th 761
Where both sides achieved some positive net effect as a result of the court’s ruling, a prevailing party determination is made by comparing the practical effect of the relief attained by each; After resolving the issue of prevailing party in an action to enforce the governing documents, a trial court has no discretion to deny attorney’s fees.
Grossman v. Park Fort Washington Association
(2012) 212 Cal. App. 4th 1128
Pre-litigation attorney’s fees that are incurred in alternative dispute resolution (ADR) are recoverable by the prevailing party in subsequent ligation.
Rancho Mirage Country Club Homeowners Association v. Hazelbaker
(2016) 2 Cal.App.5th 252
An action to enforce a settlement agreement reached between a HOA and an owner through Alternative Dispute Resolution (ADR) was held to be an action to enforce the governing documents entitling the prevailing party to an award of attorney’s fees and costs pursuant to Civ. Code § 5975.
Heather Farms Homeowners Association v. Robinson
(1994) 21 Cal.App.4th 1568
The determination as to who is the “prevailing party” entitled to its attorney’s fees under the Davis-Stirling Act is based on the court’s analysis of which party prevailed on a practical level. When that determination is made, the court’s ruling should be affirmed on appeal absent an abuse of discretion.
Salehi v. Surfside III Condominium Owners Association
(2011) 200 Cal.App.4th 1146
A HOA is deemed a prevailing party entitled to recover its attorney’s fees where the outcome of the lawsuit results in the HOA realizing its litigation objectives on a practical level.
Tract 19051 Homeowners Association v. Kemp
(2015) 60 Cal. 4th 1135
Attorney’s fees may be recovered by the prevailing party under Civ. Code § 5975 in an action to enforce the governing documents regardless of whether the association is in fact a common interest development that is subject to the Davis-Stirling Act.
Martin v. Bridgeport Community Association
(2009) 173 Cal.App.4th 1024
Plaintiff’s lack of standing does not preclude Defendant HOA’s ability to recover its attorney’s fees as the prevailing party.
In order for a party to initiate alternative dispute resolution (“ADR”), the party is required to serve on the other parties to the dispute a “Request for Resolution” pursuant to Civil Code Section 5935. The Request for Resolution must include all of the following items of information:
A notice that the party receiving the Request for Resolution is required to respond within thirty (30) days of receipt or the request will be deemed rejected; and (Civ. Code § 5935(a)(3).)
If the party on whom the request is served is the member, a copy of Article 3, of Chapter 10 of the Davis-Stirling Act (a copy of Civil Code Sections 5925-5965). (Civ. Code § 5935(a)(4).) However, even if an association does not entirely satisfy this requirement and a lawsuit is ultimately filed by the association, it may not provide grounds to dismiss the lawsuit unless the association’s failure to provide the member with copies of the ADR Code Sections results in prejudice to the member. (Ryland Mews HOA v. Munoz (2015) Cal. App. 4th 705, 710-711.)
Method of Service The Request for Resolution must be served by personal delivery, first-class mail, facsimile transmission, or “other means reasonably calculated to provide the party on whom the request is served actual notice of the request.” (Civ. Code § 5935(b).) Once the Request for Resolution is validly served, the party on whom the Request for Resolution is served has thirty (30) days to accept or reject the request; if the party does not respond within that timeframe, the Request for Resolution is deemed rejected. (Civ. Code § 5935(c).)
ADR Timelines
30 Days to Accept Request for Resolution – A party on whom a Request for Resolution is served has thirty (30) days following service to accept or reject the request. (Civ. Code § 5935(c).) If the party does not accept the request within that period (or simply fails to respond), the request is deemed rejected by that party. (Civ. Code § 5935(c).)
90 Days to Complete ADR – If the party on whom a Request for Resolution is served accepts the request, the parties are required to complete ADR within ninety (90) days after the date the acceptance was received, unless the period is extended by written stipulation signed by both parties. (Civ. Code § 5940(a).)
Effect on Statute of Limitations If a Request for Resolution is served before the applicable statute of limitations has run for commencing an enforcement action, the statute of limitations is tolled:
During the the thirty (30) day period for a response a Request for Resolution, (Civ. Code § 5945(a).) and
If the Request for Resolution is accepted, during the the ninety (90) day period to complete ADR, including any extension of time for completing the ADR that is stipulated to by the parties. (Civ. Code § 5945(b).)
An association is required to provide a “fair, reasonable, and expeditious procedure for resolving a dispute” between the association and a member involving the rights, duties or liabilities under the Davis-Stirling Act or the association’s governing documents. (Civ. Code §§ 5900, 5905.) This procedure is referred to as “Meet and Confer” and more commonly as “Internal Dispute Resolution” (IDR). The purpose of IDR is to provide a non-judicial forum to resolve disputes between a member and the association that will not result in a fee or a charge to the member.
Notice of IDR Procedure in Annual Policy Statement An association’s annual policy statement must include a description of the association’s IDR procedure. (Civ. Code §§ 5310(a)(9), 5920.)
Minimum Requirements of IDR Procedure
The IDR procedure established by an association must, at a minimum, satisfy all of the following requirements: (Civ. Code § 5910.)
Invoking IDR – The procedure may be invoked by either party to the dispute, and a request to invoke the IDR procedure must be in writing. (Civ. Code § 5910(a).)
Deadlines & Timeline for Action by Association – The IDR procedure must provide for prompt deadlines, and must state the maximum time for the association to act on a request to invoke IDR. (Civ. Code § 5910(b).)
Participation in IDR – If IDR is invoked by a member, the association must participate in IDR. If IDR is invoked by the association, the member may elect not to participate in IDR. If the member participates but the dispute is resolved other than by agreement of the member, the member must have the right of appeal to the board. (Civ. Code § 5910(c)-(d).)
Written Resolution is Binding & Enforceable – If a written resolution is signed by both parties to IDR, that resolution is binding and judicially enforceable provided that it is not in conflict with the law or the association’s governing documents. (Civ. Code § 5910(e).)
Explaining Positions & Attorney Assistance – The IDR procedure must provide a means by which the member and the association may explain their respective positions. The member and the association may be assisted by an attorney or another person in explaining their positions, at their own cost. (Civ. Code § 5910(f).)
No Fee Charged to Member – A member of the association may not be charged a fee to participate in IDR. (Civ. Code § 5910(g).)
Default IDR Procedure If an association does not establish its own IDR procedure that satisfies the requirements discussed above, Civil Code Section 5915 establishes the following default IDR procedure:
The party may request the other party to meet and confer in an effort to resolve the dispute. The request must be in writing. (Civ. Code § 5915(b)(1).)
A member of an association may refuse a request to meet and confer. The association may not refuse a request to meet and confer. (Civ. Code § 5915(b)(2).)
The parties must meet promptly at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute. The parties may be assisted by an attorney or another person at their own cost when conferring. (Civ. Code § 5915(b)(4).)
A resolution of the dispute agreed to by the parties must be memorialized in writing and signed by the parties, including the board designee on behalf of the association. That written resolution is binding and judicially enforceable so long as the agreement (1) is not in conflict with the law or the association’s governing documents, and (2) is either consistent with the authority granted by the board to its designee or is ratified by the board. (Civ. Code § 5915(b)(5),(c).)
A member may not be charged a fee to participate in IDR. (Civ. Code § 5915(d).)
Written Resolution Obtained in IDR As referenced above, a written resolution signed by the parties to IDR is binding and judicially enforceable provided that it is (1) not in conflict with the law or the association’s governing documents, and (2) is within the board’s authority (or the authority given to the board’s designee) and/or is ratified by the board. (Civ Code §§ 5910(e), 5915(c).)
Attorney Assistance at IDR As a result of Assembly Bill 1738, the Civil Code’s provisions pertaining to IDR were amended by the California Legislature and the changes which took effect on January 1, 2015 now allow for a member to bring an attorney or other person with him/her to the IDR proceeding in order to assist the member at the member’s expense. (Civ. Code §§ 5910(b), 5915(b)(4).) The Civil Code does not contain any requirement for a member to provide the association with advance notice of the member’s intent to bring an attorney to the IDR proceeding. Many HOA attorneys take the position that having a member’s attorney at an IDR proceeding without also having the association’s attorney present could violate Rule 2-100 of the California Rules of Professional Conduct. That rule prohibits an attorney from communicating with parties whom the attorney knows to be represented by legal counsel. (See Rule 2-100.) Many associations therefore opt to include a requirement in their IDR procedure for the member to provide the association advance notice of the member’s intent to have an attorney present at the IDR proceeding.
IDR Prior to Litigation
If a member requests IDR in connection with a dispute, the association may not file a lawsuit against the member regarding that dispute without first having participated in IDR with the member. (Civ. Code § 5910.1.)
When ADR is Required; Prerequisite to “Enforcement Action”
Neither an association nor any of its members may file an “enforcement action” (i.e., a lawsuit) in superior court unless the parties to the dispute have “endeavored” to submit their dispute to “alternative dispute resolution” (ADR) in accordance with Civil Code Section 5930. (Civ. Code § 5930(a).)
ADR Defined
“Alternative dispute resolution” (ADR) is defined as “mediation, arbitration, conciliation, or other nonjudicial procedure that involves a neutral third party in the decision making process.” (Civ. Code § 5925(a).)
“Enforcement Action” Defined
An “enforcement action” means a civil action or proceeding, other than a cross-complaint, for any of the following purposes:
Enforcement of the Nonprofit Mutual Benefit Corporation Law (Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code); (Civ. Code § 5925(b)(2).)
Exceptions to ADR Requirement Offering ADR is not required in connection with the following enforcement actions:
If the party is filing a claim in small claims court for money damages; (Civ. Code § 5930(c).)
Where preliminary or temporary injunctive relief is necessary; or (Civ. Code § 5950(a)(3).)
A dispute involving delinquent assessments unless the member requests ADR with the association in connection with the assessment dispute. (Civ. Code §§ 5930(d), 5658(a).)
Participation in ADR When “internal dispute resolution” (IDR) is invoked by a member, the association is obligated to participate in IDR. (Civ. Code § 5910(c); See also “Internal Dispute Resolution (IDR).”) However, there is no such requirement in the Civil Code when a member offers his/her association ADR, though such a requirement may be contained in the provisions of an association’s governing documents (i.e., in its CC&Rs).
Refusal to Participate & Attorney’s Fees – “In an enforcement action in which attorney’s fees and costs may be awarded, the court, in determining the amount of the award, may consider whether a party’s refusal to participate in [ADR] before the commencement of the action was reasonable.” (Civ. Code § 5960.)
Certificate of Compliance At the time an enforcement action is commenced (i.e., a lawsuit is filed), the party commencing the enforcement action is required to file with the initial pleading a certificate stating that one (1) or more of the following conditions are satisfied:
If the party fails to file the required certificate, it provides grounds for a demurrer or a motion to strike “unless the court finds that dismissal of the action for failure to comply with the [Civil Code’s ADR requirements] would result in substantial prejudice to one of the other parties.” (Civ. Code § 5950(b).)
Initiating ADR: “Request for Resolution” To initiate ADR, a party is required to serve on the other parties to the dispute a “Request for Resolution” pursuant to Civil Code Section 5935. In sum, the Request for Resolution includes a description of the dispute, a formal request for ADR, a notice of the required response timeline, and a copy of the Civil Code’s ADR provisions (if the party on whom the request is served is a member of the association). (Civ. Code § 5935(a); See also “Initiating ADR: Request for Resolution.”)
ADR Timelines
30 Days to Accept Request for Resolution – A party on whom a Request for Resolution is served has thirty (30) days following service to accept or reject the request. (Civ. Code § 5935(c).) If the party does not accept the request within that period (or simply fails to respond), the request is deemed rejected by that party. (Civ. Code § 5935(c).)
90 Days to Complete ADR – If the party on whom a Request for Resolution is served accepts the request, the parties are required to complete ADR within ninety (90) days after the date the acceptance was received, unless the period is extended by written stipulation signed by both parties. (Civ. Code § 5940(a).)
Effect on Statute of Limitations If a Request for Resolution is served before the applicable statute of limitations has run for commencing an enforcement action, the statute of limitations is tolled:
During the the thirty (30) day period for a response a Request for Resolution, (Civ. Code § 5945(a).) and
If the Request for Resolution is accepted, during the the ninety (90) day period to complete ADR, including any extension of time for completing the ADR that is stipulated to by the parties. (Civ. Code § 5945(b).)
ADR Costs Borne by the Parties The costs of ADR (i.e., the fees to use a neutral third party mediator or arbitrator) must be borne by the parties to ADR. (Civ. Code § 5940(c).) This requirement for a member to incur costs associated with the ADR proceeding is one of the major distinctions between ADR and internal dispute resolution (IDR); in an IDR proceeding, the member may not be charged a fee to participate in IDR. (Civ. Code § 5910(g); See also “Internal Dispute Resolution (IDR).”)
Recovery of Attorney’s Fees The parties to ADR must generally bear their own attorney’s fees. However, there may be circumstances where attorney’s fees may be recoverable by a party that prevails in a subsequent lawsuit:
ADR Attorney’s Fees are Recoverable in Subsequent Litigation Reasonable attorney’s fees that are incurred by a party in ADR are recoverable by that party if it prevails in any subsequent litigation. (Grossman v. Park Fort Washington Association (2012) 212 Cal. App. 4th 1128.)
Attorney’s Fees to Enforce a Settlement Agreement Reached in ADR are Recoverable
If a settlement agreement is reached in ADR, and a subsequent lawsuit becomes necessary to enforce compliance with that settlement agreement, the prevailing party in the lawsuit is entitled to recover its reasonable attorney’s fees and costs. (Rancho Mirage Country Club HOA v. Hazelbaker (2016) 2 Cal. App. 5th 252.)
Summary of ADR Procedures in Annual Policy Statement
An association must include a summary of the Civil Code’s provisions pertaining to ADR within the association’s annual policy statement. (Civ. Code § 5965.) The summary must include the following language in accordance with Civil Code Section 5965(a):
“Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 5930 of the Civil Code may result in the loss of the member’s right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law.”
(a) An association shall annually provide its members a summary of the provisions of this article that specifically references this article. The summary shall include the following language:
Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 5930 of the Civil Code may result in the loss of the member’s right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law.
(b) The summary shall be included in the annual policy statement prepared pursuant to Section 5310.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)
In an enforcement action in which attorney’s fees and costs may be awarded, the court, in determining the amount of the award, may consider whether a party’s refusal to participate in alternative dispute resolution before commencement of the action was reasonable.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)
(a) At the time of commencement of an enforcement action, the party commencing the action shall file with the initial pleading a certificate stating that one or more of the following conditions are satisfied:
(1) Alternative dispute resolution has been completed in compliance with this article.
(2) One of the other parties to the dispute did not accept the terms offered for alternative dispute resolution.
(3) Preliminary or temporary injunctive relief is necessary.
(b) Failure to file a certificate pursuant to subdivision (a) is grounds for a demurrer or a motion to strike unless the court finds that dismissal of the action for failure to comply with this article would result in substantial prejudice to one of the parties.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)
(a) If the party on whom a Request for Resolution is served accepts the request, the parties shall complete the alternative dispute resolution within 90 days after the party initiating the request receives the acceptance, unless this period is extended by written stipulation signed by both parties.
(b) Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code applies to any form of alternative dispute resolution initiated by a Request for Resolution under this article, other than arbitration.
(c) The costs of the alternative dispute resolution shall be borne by the parties.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)
(a) Any party to a dispute may initiate the process required by Section 5930 by serving on all other parties to the dispute a Request for Resolution. The Request for Resolution shall include all of the following:
(1) A brief description of the dispute between the parties.
(2) A request for alternative dispute resolution.
(3) A notice that the party receiving the Request for Resolution is required to respond within 30 days of receipt or the request will be deemed rejected.
(4) If the party on whom the request is served is the member, a copy of this article.
(b) Service of the Request for Resolution shall be by personal delivery, first-class mail, express mail, facsimile transmission, or other means reasonably calculated to provide the party on whom the request is served actual notice of the request.
(c) A party on whom a Request for Resolution is served has 30 days following service to accept or reject the request. If a party does not accept the request within that period, the request is deemed rejected by the party.
(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)
