5 minute read
Managing Enforcement Disputes
Balancing Reasonableness and Rules
By Nicholas Rogers, Esq.
The Davis-Stirling Common Interest Development Act (the “Act”) defines enforcement actions to include lawsuits to enforce the Act, certain provisions of the Corporations Code, and the governing documents. Examples of such disputes include architectural modification disputes, assessments disputes, election disputes, the imposition of fines, or broader claims stemming from allegations of improper association governance.
A common enforcement action arises from equitable servitudes memorialized in a recorded declaration (i.e., “CC&Rs”). The servitudes are enforceable if reasonable. Trial courts presume recorded servitudes are reasonable because they reflect community expectations and approval. In court, that means the party avoiding enforcement has the burden of demonstrating it is unreasonable. It sounds simple, but in practice it’s often more complicated.
For example, what if a member constructed solar panels in their backyard, but the CC&Rs also contain servitudes that require members to construct solar panels on roofs? And what if that same member can prove he or she is unable to construct rooftop solar panels due to some design or efficiency issues? This presents a real issue as California has statutes that void any servitude that unreasonably restricts or prohibits the construction of solar energy systems on real property. In that circumstance, and applied to that homeowner, a straightforward “reasonableness” analysis becomes far more complicated.
The concept of reasonableness applies differently to operating rules. Unlike CC&Rs, operating rules are typically adopted at the sole discretion of the board. As such, courts place the burden of demonstrating the rules are reasonable on the association. Ordinarily, this would not be an onerous burden, but directors and managers must ensure the rules do not inadvertently conflict with provisions of the CC&Rs or they are unenforceable. Attempting to enforce an unenforceable rule can create additional liability for the association.
Concepts sounding in reasonableness, like good faith as opposed to arbitrary, capricious, or selective enforcement are also asserted as defenses in virtually every enforcement case I have litigated. It is very difficult if not impossible to eliminate potential defenses sounding in reasonableness as reasonable minds can most certainly reach different conclusions based on undisputed facts. For instance, I think it’s unreasonable for anyone to put ketchup on hot dogs, but alas many others conclude otherwise.
Often, the more problematic defenses arise from procedural mistakes made by the board during the administrative enforcement process. The Act and governing documents have many procedural requirements to protect members from unfair enforcement practices including deadlines to notice hearings and sanctions, demands for internal dispute resolution (IDR) and alternative dispute resolution (ADR), and requirements for proper handling of same. Suffice to say, it’s not easy to balance time consuming enforcement matters with other association business. Despite such burdens, it is critical to note that when an association enforces, it must show that it followed its own standards and procedures in reaching its decisions and that those decisions and procedures were, you guessed it, reasonable!
If a letter memorializing an enforcement decision was delinquent, or a decision that should have been made by the architectural committee was made by the board, or the board rejected a request to sit down and discuss the dispute before filing suit, you can bet the judge or jury will hear more about those errors than the improperly installed solar panels that should have been installed on the member’s roof. Keep these issues in mind and take these tips to heart when presented with an enforcement dispute:
Be Reasonable
This states the obvious, but also the not so obvious. Managers and directors should take the time to review the CC&Rs or operating rule at issue, ensure compliance with procedures, and objectively reflect on the strengths and weaknesses of the association’s position from the perspective of the membership as a whole.
Business Judgment
Exercise prudent decision making which includes consulting qualified experts including lawyers, design professionals, CPAs, or other professionals who may have specialized training, knowledge, or experience in particular subject matters implicated by enforcement efforts. Volunteer directors should not exercise discretionary decision-making in the absence of such consultations under the misplaced good faith belief that they are saving the association money.
Patience and Reconsideration
Enforcement actions are easy to file, but difficult to resolve for a host of factors including the fact that emotions run high in neighbor disputes and the losing party is exposed to paying the prevailing party’s attorney fees and costs. If a procedural mistake occurred during the administrative enforcement process, do not be afraid to take corrective action such as redoing a hearing.
Look for Off-Ramps
Courts interpreting the Act have held it reflects the Legislature’s intent to encourage parties to resolve their disputes without resorting to litigation by effectively mandating IDR and ADR of enforcement disputes. In general, associations are not designed for litigation, volunteers have limited time, they are non-profit corporations that do not reserve for costly lawsuits, and members often oppose the use of association funds on lawyers (no offense taken). Remember, associations don’t have feelings, so directors and managers should not let their emotions guide prudent decision making.
Effective enforcement requires time and commitment. Hearings, IDRs, ADRs, and executive sessions with attorneys create burdens for volunteers and managers. Often, this results in lapses that allow a violating member to focus court proceedings on procedure as opposed to substance. Slow down, take a breath, and if you think a violation could end in litigation, consult an attorney as most enforcement actions are won or lost before a lawsuit is even filed.
