New Law Affects How Associations Settle Disputes

QUESTION: My friend owns a home in a planned development in Santa Clarita. Her homeowners’ association sent a letter to all owners about a new law that requires alternative dispute resolution. The letter said that all associations are supposed to inform their homeowners of the new law.

I own a condominium unit in Sherman Oaks. I have not received any notification from my association yet. Is my association in violation of the law? Please explain alternative dispute resolution. In what situations must the association use it?

ANSWER: The new law went into effect Jan. 1. It amends California Civil Code, Section 1354, which explains that an association’s declaration may be enforced by any owner, or the association, or both.

Your association should send notification to all members. The law states that all community associations are required to send a summary of the law to all owners annually. The summary can be included in a newsletter or other written communication, or it can be mailed along with the pro forma budget information that is sent out prior to the beginning of the association’s fiscal year. (For a summary of the law, see story, K6.)

Alternative dispute resolution (ADR) is the term for several conflict settlement processes that can be used before or instead of going to court. The new law requires that the two parties in a disagreement try to resolve the conflict through mediation or arbitration prior to commencing a lawsuit.

The law specifies that ADR is not necessary when an association is attempting to collect delinquent assessments from an owner.

In addition, there are other situations that may not require ADR before obtaining an injunction or other forms of legal action. For instance, if an owner is in the process of violating an architectural restriction by building a pool without permission, the association is allowed to take legal action to immediately halt the construction.

“The new law applies only to two types of disputes regarding the association’s governing documents, which include the declaration of covenants, conditions and restrictions (CC&Rs;), bylaws, articles of incorporation, and rules and regulations,” said attorney Herbert Strickstein, a Century City lawyer with more than 30 years of experience in community association law.

“The first type of case is ‘declaratory relief.’ In this type of case, a party is asking the court to declare or interpret the parties’ rights and obligations under one or more of the governing documents. For example, an owner may want to ask the court who has the responsibility for maintaining a balcony, patio, windows or doors.

“The second type of case is ‘injunctive relief.’ For instance, a party (the association) is asking the court to order the other party (a homeowner) to do something, or to stop doing something. Examples would be an order that a homeowner stop parking in guest parking spaces, or an order that the association fix a leaking roof.

“Either type of case may also include a claim for money damages as long as it does not exceed $5,000. The new law does not apply to cases that seek only money damages.”

The ADR procedure begins when one of the parties in the dispute gives the other party a “Request for Resolution” form. By signing the form, the parties agree to submit the dispute to mediation or arbitration.

James P. Lingl, a Camarillo attorney who is active in community association legislation and the representation of community association clients, said the “Request for Resolution” must include a brief description of the dispute, a request for mediation or arbitration and a notice that the party receiving the request form has 30 days to respond to the request, or the request is deemed to be rejected.

“The request for resolution is to be served in the same way that a small claims action is to be served,” Lingl said. “If both parties to the dispute agree to use ADR, it should be completed within 90 days, unless both parties agree in writing to conclude the ADR at a later date. The costs of the ADR will be divided between the parties.”

Strickstein said that refusing arbitration or mediation does carry a risk. If the court awards attorneys’ fees and costs, it may consider a party’s refusal to arbitrate or mediate when deciding the amounts to be awarded. A party might be required to pay more attorney’s fees if that party does not agree to arbitration or mediation.

Mediation and arbitration are two distinctly different procedures. The two parties involved in a dispute might be inclined to choose arbitration rather than mediation depending upon the nature of the conflict.

What is arbitration?

When arbitration is used, the two parties present their testimony to an arbitrator, a third party who hears both sides of the argument and then renders a judgment. Arbitration can be binding or non-binding.

What is mediation?

Mediation uses a mediator, a third party, who listens to both sides and encourages open discussion between the parties about the reasons for the conflict. The mediator ensures the active participation of both parties by facilitating the communication, thereby assisting the two parties in exploring various ways to resolve the problem. The two parties then agree to a solution that they have helped to shape.

In community associations, the two parties involved in the conflict are often neighbors who will continue to live in the association after the conflict is resolved. Therefore, all parties should be interested in preserving a friendly atmosphere by using a constructive approach to resolve problems. Having served as a mediator on many occasions, I am convinced that mediation promotes the healing of bruised egos and combative attitudes of the two parties. After using mediation, the association is then better equipped to handle future problems.

ADR can save the association member’s time, energy and money by resolving problems quickly and efficiently without going to court. The new requirement to attempt to mediate or arbitrate will have a positive impact on the workload of the court system. In addition, effective conflict resolution promotes a cooperative attitude among all of the owners.

Litigation, on the other hand, is often expensive, creates dissension among the owners, and takes a great deal of time and energy that could be used in more constructive ways. Litigation is often stressful to the participants and, in some cases, interferes with the owner’s ability to sell or the buyer’s ability to obtain a mortgage loan.

Who is responsible for finding a mediator or arbitrator?

The person or persons who initiate the request for resolution form are usually the ones who find the mediator or arbitrator and engage the services on behalf of both parties. Since both parties share the cost, either party can suggest a mediator or arbitrator.

Where does one find a mediation or arbitration service?

There are several services, such as HomeOwners Arbitration and Mediation Services (HOAMS), that specialize in community association dispute resolution. HOAMS was formed as a joint enterprise of Judicial Arbitration and Mediation Services (JAMS), and Kate M. Rinaldi & Associates, a law and mediation firm. HOAMS was formed specifically in response to the new requirements of Civil Code 1354.

“We contact all of the parties and coordinate the time and place for the hearing,” said attorney Kate Rinaldi, president of HOAMS. “Our mediators are seasoned professionals who have years of mediation experience as well as specialized training in homeowner association matters.” HOAMS can be reached by calling (800) ADR-1354.

Lingl said, “In addition to the ADR services that have personnel trained in community association disputes, each county has a low cost/no cost ADR service that is partially funded by court filing fees, such as Dispute Resolution Services in Los Angeles.”

Lingl has trained some of their mediators to provide them with information about the large body of law that governs community associations. Dispute Resolution Services can be reached at (213) 896-6526. Callers will be referred to one of several branch offices in Pasadena, South Bay, Lakewood, Santa Monica or East Los Angeles.

Another way to find mediators is to call the Southern California Mediation Assn. at (213) 896-6540. The association maintains a referral service. Callers can request a mediator with specific experience and training.

Dispute Workshop

Attorney Kate Rinaldi, president of HomeOwners Arbitration and Mediation Services (HOAMS), will conduct a workshop on alternative dispute resolution for community association managers from 8:15 a.m. to noon June 17 at the Hyatt Regency Hotel in Irvine. Managers will learn how to help their association boards of directors comply with the law.

The workshop is being presented by the California Assn. of Community Managers (CACM). Managers can call CACM at (714) 476-4542 for more information.

Here’s the Law: Clip ‘n’ Save

Rich Neuland, an attorney with Hickey & Neuland, an Orange County law firm specializing in community association law since 1970, has prepared the following summary of the law, which can be used for distribution to association members. Associations must distribute a summary to their members each year.

Summary of Civil Code Section 1354

Effective Jan. 1, 1994, the California Civil Code, Section 1354, was amended to enact “Alternative Dispute Resolution” (ADR) procedures. The law requires that before a common interest development (homeowners association) or an individual homeowner files a lawsuit against the other, solely for declaratory relief or injunctive relief in connection with a claim for money, under $5,000 (other than association assessments) or for enforcing the association’s governing documents, the filing party “shall endeavor” to submit the dispute to alternative dispute resolution. Forms of ADR include mediation, negotiation and arbitration and may be binding or non-binding.

The ADR process is initiated by one party serving a “Request for Resolution” form upon the other party to the dispute. The form must include (1) a brief description of the dispute, (2) the request for ADR, (3) a notice that a response must be received within thirty (30) days or it will be deemed rejected, and (4) a copy of Civil Code Section 1354. Service of the Request for Resolution should be by personal service or Small Claims Court procedures.

If the individual receiving the request form agrees to ADR, the ADR process must be completed within ninety (90) days unless otherwise extended by the agreement. The cost of the ADR process is to be paid by the participating parties.

At the time a civil suit is begun by the filing of a Complaint, the filing party must also submit to the Court a Certificate of Compliance indicating that they have complied with the requirements of Civil Code, Section 1354, or stating any excuse for not doing so.

If no Certificate is filed, it may be grounds for challenging the suit. Proper excuses include (1) a party refused ADR, (2) that fast injunctive relief is necessary, (3) the right to bring suit will expire within 120 days following the filing of the action, or (4) dismissal of the suit would harm the filing party.

Civil Code, Section 1354, also allows the Court to send a lawsuit to ADR upon agreement of the parties. The procedures and requirements of the law do not apply to the filing of cross-complaints. Failure by any member of the association to comply with the pre-filing requirements of Section 1354 may result in the loss of the rights to sue the association or another member of the association regarding enforcement of the governing documents.

Although the winning party shall be awarded reasonable attorney’s fees and costs, the Court may consider a party’s refusal to participate in ADR prior to starting the suit. Unless the two parties agree to the disclosure, evidence made and documents prepared for the ADR process are not admissible in a later civil action.