A case was published last week that highlights the importance of complying with Davis-Stirling alternative dispute resolution (ADR) requirements.
Moulton Parkway is an association in Orange County where a few members sued alleging violations of the Davis-Stirling Act (conducting business outside board meeting and failing to maintain and make available certain corporate records).
ADR Required. Prior to filing a lawsuit, section 5950(a) of the Civil Code requires that plaintiffs file a certificate stating (i) ADR has been completed or (ii) the other party did not accept ADR or (iii) injunctive relief was necessary. Plaintiffs failed to file a certificate and the association demurred.
Demurrer Defined. A demurrer is a request that the court dismiss the lawsuit because the facts alleged by the plaintiff, even if true, were not sufficient to justify legal action. If the court agrees, the judge sustains the demurrer (grants the request).
Frivolous Action. To avoid dismissal of their action, plaintiffs voluntarily refiled their lawsuit with a certificate of ADR. The association again demurred because plaintiffs made no attempt to engage in ADR. Plaintiffs had initially submitted a request for ADR which the board accepted. However, plaintiffs failed to actually engage in ADR.
The court determined that dismissing the first action by plaintiffs and re-filing it without attempting to engage in ADR was frivolous. "The association was willing to engage in ADR; it was plaintiffs who derailed the process." As a result, the court sustained the association's demurrer without leave to amend. In other words, the court dismissed the lawsuit.
RECOMMENDATION: The Davis-Stirling requirement that parties attempt dispute resolution before going into court must be taken seriously. Those who ignore the requirement can lose their right to litigate. To read the case, see Retzloff v. Moulton Parkway HOA.
RE SHORT-TERM RENTALS
In a recent unpublished case, owners complained about noise, public drunkenness, and damage to elevators, lobbies, and hallways by short-term vacation renters.
In addition, some owners had difficulty refinancing their units because lenders viewed the development as a “condotel.” To address the problem, the association amended its CC&Rs to restrict short-term rentals.
The association could not meet the 75% approval required by its existing CC&Rs but exceeded the 50% required by the Davis-Stirling Act. The board petitioned the court for an approval under Civil Code §4275. The court granted the petition and a landlord owner appealed and lost.
The court recognized that rental restrictions protect property values, facilitate unit financing, and reduces wear and tear to the common areas from tenant move-ins and move-outs.
COMMENT: Although the case is unpublished, it highlights the problems created by short-term rentals. CC&R amendments are increasingly necessary to address the issue. To read the case, see Ocean Windows Owners Association v. Spataro. I will be speaking on this issue on September 15 (see next item).
I will be one of the speakers at CAI's Education Conference & Mini-Expo in the San Francisco Bay Area.
I will address the growing problem of short-term vacation rentals in HOAs and what boards and managers can do to address it.
Agenda: See the Agenda and Speakers
When: Friday, Sept. 15 from 8 am to 3 pm
Where: San Ramon Marriott
Register: Register online
I will be a speaker at Equity Management's annual seminar. This free seminar provides information from a variety of speakers on legislative trends, reserves, gang violence, drought survival, and coping with wild legal problems.
When: Saturday Sept. 16, 8:30-12:00
Where: Wilson Creek Winery, Temecula
Who: Board Members
Food: Breakfast before and wine afterwards
Prize: 55-inch Smart TV
Register: Register Online for this free event (and for more information)
AVNINDER "ALEX" SOHAL
JOINS ADAMS STIRLING
I am pleased to announce attorney Alex Sohal joined our firm.
Academics. Alex earned his Bachelor of Arts in Political Economy from the University of California, Berkeley and his law degree from the McGeorge School of Law in Sacramento. Alex made the Dean’s List for academic excellence all three years and was an editor for the Globe Law Review.
Legal Work. Prior to joining ADAMS | STIRLING, Alex handled general civil litigation and transactional work. He worked on leases and buy/sell agreements, reviewed estate planning documents, and evaluated bank auditing and compliance standards. On the litigation side, Alex prepared complaints, discovery, motions and briefs, and attended depositions, court hearings and settlement conferences.
Alex works out of our Northern California office providing legal counsel to associations throughout the state. If your HOA needs legal services, contact us for a proposal.
Kudos. Once again, an interesting and amusing newsletter! -Lee H.
Internet Fees. Due to the increased pricing of the internet and the myriad of choices for the service, is it legal to add internet service fees in HOA fees? Obviously the idea is to save a lot of money with the majority of our units using internet. -Melinda L.
RESPONSE: Yes, the fee can be included in dues if the association provides the service to all members. It's like master-metered water or gas--the cost is built into the budget and becomes part of the dues.
Vacant Seats #1. Excellent comments on filling vacant seats. Can a director who has been removed by the members run again? I know it would be stupid since there probably was a reason to remove the person for cause. -Finn M.
RESPONSE: Unless your bylaws provide otherwise, some recalled by the membership can run again. It's like a bank robber released on parole--common sense dictates they not rob any more banks, yet many do.
Vacant Seats #2. You wrote that if a vacancy occurs too close to the next annual meeting, the board might decide to leave the seat empty and let the membership fill it. Does that mean the board cannot, or should not make appointments or that if they make the appointment, that seat is up at the annual meeting? -D.M.
RESPONSE: You're overthinking last week's response. If the seat is up for election in 60 or 90 days, the board might leave it empty and allow the membership to fill it. If it's not up for another year, the board will likely appoint someone to fill it.
Election Rules #1. I respectfully disagree with your opinion on unsubstantiated rules. There is no harm in doing due diligence and researching old minutes for a vote on the rules. This shows the need for: (1) annotating approved rules/regs with the date of the vote and results, (2) keeping a policy/procedure handbook with all new/revised policies, and (3) keeping a log of all votes at board meetings. -Maggie L.
RESPONSE: You make good recommendations.
Election Rules #2. If inspectors of election may verify signatures on the envelopes, how is it done? Do we need everybody's signatures on file? Thank you! -Anna D.
RESPONSE: Yes, you need signatures on file. In the alternative, the inspector can decide to verify only those signatures that appear suspect or have been challenged. That can be done by contacting the owner of the unit/lot to find out if they cast a ballot. If they did not, the ballot is voided. If they did cast a ballot, the person can verify the signature as theirs--or not.
Election Rules #3. In researching our election rules, I found that generic rules were provided by our management company which did not consider our bylaws. I don't see how a generic sample meets the legal requirement for associations to have election rules. Common sense seems to be lacking. De Oppresso Liber. -Bill L.
RESPONSE: For our non-military readers, De Oppresso Liber is the motto of the U.S. Army Special Forces. It is Latin and means “To Free the Oppressed." It reflects the core values of those extraordinary men and women who serve in our special forces. Similarly, the U.S. Marine Corps has its own guiding motto, Semper Fi, which is short for Semper Fidelis and means "Always Faithful," i.e., faithful to God, country, family and the corps.
Bill, your experience highlights why boards should have legal counsel draft or at least review documents. Relying on non-lawyers to prepare legal documents is, at best, problematic.