By Steven R. Napoles, Esq. and Christina Baine DeJardin (originally published in Fall 2003)

In August of 2003, associations received further guidance from the California Court of Appeal, Second Appellate District, regarding requirements for service of a Request for Resolution by Alternative Dispute Resolution (“ADR”) pursuant to Civil Code section 1354. Civil Code section 1354 requires that associations, prior to filing a lawsuit to compel an owner’s compliance with the governing documents (except in limited cases involving either assessments or a dispute greater than $5,000.00), must first offer the owner the opportunity to participate in ADR. Until recently, no court had addressed the proper procedure for serving a request for ADR.

In Cabrini Villas Homeowners Association v. Haghverdian, 111 Cal. App. 4th 683 (2003), the Court considered a challenge to service of an ADR request. In this case, the owner, Haghverdian, violated the association’s governing documents by installing a bathroom window and wall mounted air conditioning unit through an exterior structural wall of her residence during the association’s extensive earthquake repairs. During a walk thru, the association’s general manager and construction contractor discovered the window and air conditioning unit and reported both conditions to the association’s board of directors. Both of these improvements were installed without first obtaining the approval of the association through the architectural application process.

Somewhat belatedly, the owner submitted an architectural application for approval of the installation of both the window and air conditioning, which were not approved because of concerns regarding the structural wall. The association’s general manager notified Haghverdian by letter that if she did not remove the air conditioner the association would turn the matter over to its attorneys. Haghverdian claimed that she did not receive this letter. Subsequently, the violation was submitted to legal counsel, who sent a Request for Alternative Dispute Resolution via first class mail and certified mail with a return receipt requested.

The owner never signed the receipt for the certified copy and claimed that she had no knowledge of the association’s request for ADR. Just days later, the general manager invited Haghverdian to attend a judicial committee meeting to discuss the matter and that failure to appear would be construed as a refusal to amicably settle the issue. Haghverdian did not attend the meeting, claiming that she did not receive this letter either. At the meeting, the judicial committee concluded that the air conditioner must be removed. Subsequently, the Board of Directors filed suit against Haghverdian for breach of the CC&Rs, and seeking an injunction to compel Haghverdian to remove the air conditioner and repair the affected wall (the dispute over the windows was previously resolved). Haghverdian filed a demurrer alleging that the complaint should fail because the Association failed to file a certificate verifying that it had complied with ADR.

The trial court overruled the demurrer and issued the injunction, finding that Haghverdian had failed to comply with the CC&Rs in installing the air conditioner, and that the installation affected the structural integrity of the building. On appeal, Haghverdian claimed that the court injunction was ineffective because the Association had failed to personally serve her with the request for ADR. The Court expressly rejected the owner’s claims that a request for ADR be personally served. The Court held that service of the request for ADR by sending a copy both via first class mail and certified mail with a return receipt requested satisfied the requirements of Civil Code section1354.

Section 1354 of the Civil Code does not itself identify the proper procedure for serving a defendant with a request for ADR. Instead, section 1354 incorporates the procedure identified in the Code of Civil Procedure section governing service of a claim in a small claims action. This section indicates that the court clerk may serve the defendant by any form of mail providing for return receipt or that the plaintiff may serve the defendant by personal or substituted service. It does not indicate that legal counsel for the plaintiff may serve the defendant by any means. The Court held that this was not significant considering the interplay between the two codes and the fact that at the time a request for ADR is required to be served, no action has yet been filed, and thus no court clerk has been involved to serve the request. The Court also held that service by any form of mail requiring a return receipt is allowed. It is important to note that the Court did not preclude personal service.

In addition to confirming how associations may serve owners with a request for ADR, the Cabrini court also raised additional issues regarding whether or not such attempts at service are completed if the owner refuses or otherwise does not sign the return requested receipt. In Cabrini, the owner claimed that she did not have any knowledge of the association’s registered mail, and was unable to obtain a copy because the post office already returned the registered mail to the sender. However, there was evidence to dispute this allegation and the Court ignored such arguments based on procedural grounds.

The Court also held that because Haghverdian did not raise it at the trial court level, she was blocked from raising the issue that her failure to sign the return receipt was fatal to the Association’s compliance with the Civil Code. As an aside, the Court stated that if Haghverdian had raised the issue at trial, the trial court could have dismissed the case OR could have ignored the Association’s non-compliance if it would have resulted in substantial prejudice to one of the parties. If the trial court were to dismiss a case on such grounds, an Association could simply serve a new ADR request and commence a new action.

Finally, the Court found that there was substantial evidence that the architectural committee had considered Haghverdian’s air conditioner and that the Board had information that the air conditioner weakened the structural integrity of the building. It also determined that a monetary penalty, as a remedy at law, would not cure the unsightliness of the air conditioner or bolster the structural integrity of the building. Ultimately, the Court upheld the injunction.

This case is important because it answers the question of how an Association can properly comply with service requirements for requests for resolution by ADR. An association does not have to personally serve the defendant with a request for ADR, and can direct legal counsel to take care of the service requirement. Further, legal counsel may use the simpler process of service via certified mail with return receipt requested rather than by personal service. Finally, while a failure to strictly comply with the ADR request service requirements is not fatal to an association’s case, associations and/or their attorneys are not precluded from employing traditional process service means in order to serve homeowners with requests for ADR.

If you have any questions regarding the alternative dispute resolution process in general or the requirements of Civil Code section 1354, please do not hesitate to contact our office.