SB 61 - Effective July 1, 2006, new statutes will place additional burdens on associations during elections

Feldsott & Lee
A Law Corporation

As of July 1, 2006, Senate Bill 61 (“SB 61”) will become operative. The purpose of SB 61 is to provide procedural safeguards for conducting elections in common interest developments. The author of SB 61, Representative Battin, in making arguments in support of the Bill, noted that:

“. . . Ballots in Common Interest Development (“CID”) elections are not required by law to be secret. This leaves an opening for potential abuse wherein homeowners can be intimidated and disinclined to vote in accordance with their true desires. Numerous instances of such manipulations have been reported, giving the impression that elections conducted in many CIDs lack procedural safeguards to fully protect the integrity of the voting process. . .”

In an effort to eliminate the potential for abuse, SB 61 makes several amendments and additions to the Civil Code, and more specifically, the Davis-Stirling Common Interest Development Act. (Civil Code §1350 et seq.) The most relevant of these amendments will be discussed in detail below.

First, SB 61 Amends Section 1357.120 of the Civil Code to add subparagraph (7). The addition of subparagraph 7 makes the rule changing procedures and the procedures for reversing rule changes in Section 1357.130 and Section 1357.140 directly applicable to procedures for elections.

Next, SB 61 adds several Sections to Title 6, Chapter 4, Article 2 (commencing with Section 1363.05) of the Civil Code including Section 1363.03, Section 1363.04, and Section 1363.09. Section 1363.03 sets forth the procedures that an Association must follow prior to and during elections; Section 1363.04 sets forth a limitation on the use of Association funds for campaign purposes; and finally, Section 1363.09 sets forth the legal remedies available to the members of an Association alleging violations of the election procedures.
Civil Code § 1363.03:
The first major requirement of Section 1363.03 is set forth in subparagraph (a), which requires an Association to adopt rules that:

1. Ensure that if any candidate or member advocating a point of view is provided access to association media, newsletters, or Internet Web sites during a campaign, for purposes that are reasonably related to that election, equal access shall be provided to all candidates and members advocating a point of view, including those not endorsed by the board, for purposes that are reasonably related to the election. The association shall not edit or redact any content from these communications, but may include a statement specifying that the candidate or member, and not the association, is responsible for that content.

2. Ensure access to the common area meeting space, if any exists, during a campaign, at no cost, to all candidates, including those who are not incumbents, and to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the election.

3. Specify the qualifications for candidates for the board of directors and any other elected position, and procedures for the nomination of candidates. A nomination or election procedure shall not be deemed reasonable if it disallows any member of the association from nominating himself or herself for election to the board of directors.

4. Specify the qualifications for voting, the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and close.

5. Specify a method of selecting one or three independent third parties as inspector, or inspectors, of election utilizing one of the following methods:
(A) Appointment of the inspector or inspectors by the board.
(B) Election of the inspector or inspectors by the members of the association. As of July 1, 2006, Senate Bill 61 (“SB 61”) will become operative. The purpose of SB 61 is to provide procedural safeguards for conducting elections in common interest developments. The author of SB 61, Representative Battin, in making arguments in support of the Bill, noted that:
“. . . Ballots in Common Interest Development (“CID”) elections are not required by law to be secret. This leaves an opening for potential abuse wherein homeowners can be intimidated and disinclined to vote in accordance with their true desires. Numerous instances of such manipulations have been reported, giving the impression that elections conducted in many CIDs lack procedural safeguards to fully protect the integrity of the voting process. . .”
In an effort to eliminate the potential for abuse, SB 61 makes several amendments and additions to the Civil Code, and more specifically, the Davis-Stirling Common Interest Development Act. (Civil Code §1350 et seq.) The most relevant of these amendments will be discussed in detail below.
First, SB 61 Amends Section 1357.120 of the Civil Code to add subparagraph (7). The addition of subparagraph 7 makes the rule changing procedures and the procedures for reversing rule changes in Section 1357.130 and Section 1357.140 directly applicable to procedures for elections.
Next, SB 61 adds several Sections to Title 6, Chapter 4, Article 2 (commencing with Section 1363.05) of the Civil Code including Section 1363.03, Section 1363.04, and Section 1363.09. Section 1363.03 sets forth the procedures that an Association must follow prior to and during elections; Section 1363.04 sets forth a limitation on the use of Association funds for campaign purposes; and finally, Section 1363.09 sets forth the legal remedies available to the members of an Association alleging violations of the election procedures.
Civil Code § 1363.03:
The first major requirement of Section 1363.03 is set forth in subparagraph (a), which requires an Association to adopt rules that:
1. Ensure that if any candidate or member advocating a point of view is provided access to association media, newsletters, or Internet Web sites during a campaign, for purposes that are reasonably related to that election, equal access shall be provided to all candidates and members advocating a point of view, including those not endorsed by the board, for purposes that are reasonably related to the election. The association shall not edit or redact any content from these communications, but may include a statement specifying that the candidate or member, and not the association, is responsible for that content.
2. Ensure access to the common area meeting space, if any exists, during a campaign, at no cost, to all candidates, including those who are not incumbents, and to all members advocating a point of view, including those not endorsed by the board, for purposes reasonably related to the election.
3. Specify the qualifications for candidates for the board of directors and any other elected position, and procedures for the nomination of candidates. A nomination or election procedure shall not be deemed reasonable if it disallows any member of the association from nominating himself or herself for election to the board of directors.
4. Specify the qualifications for voting, the voting power of each membership, the authenticity, validity, and effect of proxies, and the voting period for elections, including the times at which polls will open and close.
5. Specify a method of selecting one or three independent third parties as inspector, or inspectors, of election utilizing one of the following methods:
(A) Appointment of the inspector or inspectors by the board.
(B) Election of the inspector or inspectors by the members of the association.
(C) Any other method for selecting the inspector or inspectors.

It is important to note that the Association must follow the procedures set forth in Section 1357.100 through Section 1357.150 for affecting rules changes. The five “goals” of Section 1363.03(a) should be used by the Association as a guidepost to adopting its own set of rules regarding its election procedures. So long as each of these “goals” are met, the Association will have complied with this Section of the statute.

Next, Section 1363.03(b) requires that an election within a common interest development regarding assessments, selection of members of the association board of directors, amendment to the governing documents or the grant of exclusive use of common area property pursuant to Section 1363.07 shall be held by secret ballot. The requirements set forth in subparagraph (b) are mandatory and must be followed by the Association regardless of whether the governing documents provide otherwise. Further, the procedures for assuring that the ballots remain secret are set forth within Section 1363.03(e) and must be followed by the Association as well.
Next, Section 1363.03 subparagraph (c), requires an Association to select an “independent third party” to be the inspector of elections. An Association can choose to have either one or three inspectors of elections. According to the definition provided within this section, an “independent third party” includes but is not limited to:
“. . a volunteer poll worker with the county registrar of voters, a licensee of the California Board of Accountancy, or a notary public. An independent third party may be a member of the association, but may not be a member of the board of directors or a candidate for the board of directors or related to a member of the board of directors or a candidate for the board of directors. An independent third party may not be a person who is currently employed or under contract to the association for any compensable services unless expressly authorized by rules of the association adopted pursuant to paragraph (5) of subdivision (a).” (Civil Code § 1363.03[c][2].)

It is important to note that the only people who are explicitly prohibited, by statute, from being an “independent third party” for purposes of an election are members of the board, candidates for the board, or relatives of board members or candidates. Any other person may be considered an independent third, even those employed by or under contract to the association for compensable services, so long as the rules adopted by the Association allow them to be.

The duties of the inspector of elections are set forth in Section 1363.03(c)(3) and include:

1. Determining the number of memberships entitled to vote and the voting power of each.
2. Determining the authenticity, validity, and effect of proxies, if any.
3. Receiving ballots.
4. Hearing and determining all challenges and questions in any way arising out of or in connection with the right to vote.
5. Counting and tabulating all votes.
6. Determining when the polls shall close.
7. Determining the result of the election. and
8. Performing any acts as may be proper to conduct the election with fairness to all members in accordance with this section and all applicable rules of the association regarding the conduct of the election that are not in conflict with this section.

The inspector of elections (or potentially all three inspectors of elections) is also required to “perform his or her duties impartially, in good faith, to the best of his or her ability, and as expeditiously as is practical.” (Civil Code § 1363.03(c)(4).) If there are three inspectors of election, the decision or act of a majority shall be effective in all respects as the decision or act of all. (Id.)

The next Section of the Civil Code, Section 1363.03 subparagraph (d) requires that:

“Any instruction given in a proxy issued for an election that directs the manner in which the proxy holder is to cast the vote shall be set forth on a separate page of the proxy that can be detached and given to the proxy holder to retain. The proxy holder shall cast the member’s vote by secret ballot.”

This Section ensures that the proxy will be voted confidentially.

Section 1363.03(e), as noted above, sets forth the procedures for insuring that the ballots cast by homeowners remain confidential up to and including the time they are counted. Specifically, Section 1363.030(e) provides that:

“Ballots and two preaddressed envelopes with instructions on how to return ballots shall be mailed by first-class mail or delivered by the association to every member not less than 30 days prior to the deadline for voting. In order to preserve confidentiality, a voter may not be identified by name, address, or lot, parcel, or unit number on the ballot. The association shall use as a model those procedures used by California counties for ensuring confidentiality of voter absentee ballots, including all of the following:

1. The ballot itself is not signed by the voter, but is inserted into an envelope that is sealed. This envelope is inserted into a second envelope that is sealed. In the upper left hand corner of the second envelope, the voter prints and signs his or her name, address, and lot, or parcel, or unit number that entitles him or her to vote.
2. The second envelope is addressed to the inspector or inspectors of election, who will be tallying the votes. The envelope may be mailed or delivered by hand to a location specified by the inspector or inspectors of election. The member may request a receipt for delivery.”

While this Section provides that the Association must use the above procedures as a “model” for keeping ballots confidential, it may not be mandatory to do so. However, it would probably be in an Association’s best interest to follow the above procedures rather than come up with a different method for keeping ballots confidential in order to ensure compliance with the confidentiality requirements of the statute.

Next, Sections 1363.03(f) and (g) set forth the procedures for counting the votes and the procedures for reporting the results of the election respectively. Section 1363.03(f) provides that:

“All votes shall be counted and tabulated by the inspector or inspectors of election in public at a properly noticed open meeting of the board of directors or members. Any candidate or other member of the association may witness the counting and tabulation of the votes. No person, including a member of the association or an employee of the management company, shall open or otherwise review any ballot prior to the time and place at which the ballots are counted and tabulated.”

The results of the election are to be “promptly reported to the board of directors of the association and shall be recorded in the minutes of the next meeting of the board of directors and shall be available for review by members of the association.” (Civil Code § 1363.03[g].) The results of the election need only be made public by the Board, within 15 days of the election, in a communication directed to all members. (Id.) The manner of communication of the results is not provided by the statute; however it is likely that a letter to the members would suffice or perhaps the results can be included within an Association newsletter, so long as it is sent to the members within the statutory time frame.

Section 1363.03 (h), sets forth procedures for handling the ballots - the sealed ballots shall be in the custody of the inspector of election or at a location designated by the inspector or inspectors until after the tabulation of the vote, at which time custody shall be transferred to the association. While it is not clear from this Section whether, the inspector of elections can remove the sealed ballots from the envelopes in which they are contained (See Section 1363.03[e], above) the reasonable interpretation of this section is that the sealed ballots do in fact remain enclosed within the envelopes addressed to the inspector of elections until the actual counting of the votes is to take place on the day of the election, at which time the ballots will be removed.

Section 1363.03(i) sets forth the Association’s responsibility for storing of the ballots - election ballots shall be stored by the association in a secure place for no less than one year after the date of the election. Further, this Section sets forth the procedure for access to the ballots in the event of a recount - in the event of a recount or other challenge to the election process, the association shall, upon written request, make the ballots available for inspection and review by association members or their authorized representatives. Any recount shall be conducted in a manner that shall preserve the confidentiality of the vote.

Finally, Section 1363.03(j) provides that “The provisions of this section apply to both incorporated and unincorporated associations, notwithstanding any contrary provision of the governing documents.”

All of the above referenced provisions of Section 1363.03 will be added to the Civil Code once SB 61 goes into effect on JULY 1, 2006. As such, Associations will have added responsibilities when conducting elections, including the election of the members to the board of directors and as will be discussed more fully below, the Association may potentially be exposed to additional liability if the above requirements are not followed.

Civil Code § 1363.04:

Civil Code § 1363.04 specifically prohibits the use of association funds for “campaign purposes” in connection with any association board election. The use of Association funds for “campaign purposes” is further limited in the context of elections regarding assessments, amendments to the governing documents, or the grant of exclusive use of common area property pursuant to Section 1363.07. In these situations, Association funds may only be used to the extent necessary to comply with duties of the Association imposed by law. By way of example, as noted above, under what will be the newly enacted Civil Code §1363.03(e), two preaddressed envelopes must be provided to the homeowners at least 30 days prior to the time for voting on any of the elections listed in Section 1363.03(b), which includes those listed above. As such, Association funds could be used to accomplish proper delivery of the envelopes and ballots in order to comply with this new law.

“Campaign purposes” are defined in Section 1363.04(b) and include:

“(1) Expressly advocating the election or defeat or any candidate that is on the association election ballot.

(2) Including the photograph or prominently featuring the name of any candidate on a communication from the association or its board, excepting the ballot and ballot materials, within 30 days of an election, provided that this is not a campaign purpose if the communication is one for which subdivision (a) of Section 1363.03 requires that equal access be provided to another candidate or advocate.”

Civil Code § 1363.09:

Finally, SB 61 adds Civil Code § 1363.09, which sets forth the remedies available to members of the Association should the Association fail to comply with Article 2 of the Civil Code, commencing with, what will be the newly added, Section 1363.03.

An Association member is given the authority, by statute, to bring a civil action for declaratory or equitable relief within one year of the date the cause of action accrues - i.e. the date the Association failed to comply with Article 2 of the Civil Code commencing with, what will be the newly added, Section 1363.03. If the Court finds that the election procedures or the adoption of and adherence to rules provided by Article 4 (commencing with Section 1357.100) of Chapter 2, were not followed, a court may void any results of the election. Section 1363.09 also entitles the member who prevails in a civil action to recover reasonable attorney’s fees, court costs, and the court may impose civil penalties of up to five hundred dollars for each violation.

It is important to note that the Association, should it prevail in an action brought by a member challenging the election procedures, will not recover any costs unless the court finds the action brought by the member to be frivolous, unreasonable or without foundation. Finally, Section 1363.09(c), provides that a “cause of action under Section 1363.03 with respect to access to association resources by a candidate or member advocating a point of view, the receipt of a ballot by a member, or the counting, tabulation, or reporting of, or access to, ballots for inspection and review after tabulation may be brought in small claims court if the amount of the demand does not exceed the jurisdiction of that court.”
Associations should immediately consider when and how they will be able to bring themselves into compliance with the new Sections of the Civil Code, which will become operative on JULY 1, 2006. As noted above, the failure to comply with these newly enacted statutes can result in lawsuits, liability for attorney’s fees, court costs and possibly civil penalties. Accordingly, Associations should consult their legal counsel if any problems or questions arise in the promulgation and more importantly in the implementation of the “election procedure” rules. #