Document Production Issues

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By Mary M. Howell, Esq.

Civil Code Section 5200

The references to financial documents in section 5200(a) can be translated from the legalese as follows:

5200(a)(1) entitles an owner to “any financial document required to be provided to a member in Article 7 (commencing with §5300) or in sections 5565 and 5810.”  The documents required to be produced by section 5300 et seq. are the annual budget and reserve study (§5300), and insurance and loan information (ibid.)  The document required by section 5565 is the summary of association reserves.  The document required to be provided by section 5810 is notice of any expiration of insurance policies.

5200(a)(2) entitles an owner to “any financial document required to be provided in Article 2 (commencing with §4525) of Chapter 4.”

“Article 2, commencing with section 4525” requires the production to an owner in connection with a pending sale of the owner’s dwelling of the items listed in section 5235 (viz., all governing documents [that is, Articles, Bylaws, CC&Rs, Rules], a statement if the age restrictions deviate from the Unruh Act, the section 5300 documents listed above, a statement of the amount of regular and special assessments, unpaid assessments on a requesting owner’s property, notices of violation on a requesting owner’s property, a copy of a construction defects list generated pursuant to section 6000, if any, other specified information regarding construction defects, a statement as to whether a change in the assessment structure is pending, rental restrictions and minutes for the last 12 months.

Section 5200(a)(3) requires production of “interim financial statements which contain a balance sheet, and income and expense statement, a budget comparison, and/or a general ledger…”

PRACTICE TIP:  Your governing documents may be broader than the statute.  Check.

Items commonly requested which are NOT required to be produced in response to an owner request include:

  • Correspondence
  • A request to identify “each and every document which pertains to …”
  • A “report” not otherwise prepared or submitted in final form to the board
  • Lists of vendors
  • Records of disciplinary actions (usually requested by an owner subject to discipline who demands records for actions “similar” to an owner’s alleged violation)

PRACTICE TIP:  Regarding manager salary information, the Code does require production of employee contracts (though it allows for redaction of personal information.)  If the manager is actually an employee of the association, the contract is required to be produced.  If the manager is, instead, an employee of the management company, salary information and contract details are not required to be produced (though an owner can make an educated guess based on a copy of the management company contract and/or the budget, both of which ARE required to be produced…)

Mechanics of Production

On site or elsewhere?

Section 5205(c):  “The association shall make the specified association records available for inspection and copying in the association’s business office within the …development.”

Section 5205(d):  “If the association does not have a business office within the development, the association shall make the specified … records available for inspection and copying at a place agreed to by the requesting party and the association.”

PRACTICE TIP:  It’s not a bad idea to have a staff person or director or manager present to inspect the inspection…

Section 5205(e):  “If the association and the requesting member cannot agree upon a place…or if the requesting member submits a written request directly to the association for copies of specifically identified records, the association may satisfy the requirement …by delivering copies of the …records to the member…”

  • Who gets to do the copying? Owner or agent (such as attorney) authorized by the owner in writing.   Civil Code section 5205(b).
  • What costs can be passed through?

Staff Search and Copy Time

Section 5205(f) allows “the direct and actual cost of copying and mailing…” (and the association shall inform the owner, and the owner shall agree to pay, before copying [and sending] the documents.”   It’s clear that the association may pass through the contracted (management company) cost for these actions; it’s not at all clear whether the association can charge an owner for the probable cost to have association employees perform these same tasks.

Attorney Time to Redact Records

“…an amount not in excess of …$10 … per hour, and not to exceed …$200…per written request…”  section 5205(g)

  • Can you require a form to be used? We recommend you DO develop a form and require use. DSCIDA does not say “yes, you can” or “no, you can’t” but from a corporate housekeeping point of view, it allows for better record production and for tracking costs.
  • Can you elect to email the documents? Not unless the owner consents to email (and the format must be non-alterable, e.g., pdf).  Section 5205(h)
  • Can’t meet the deadline? Send a letter or email outlining what you HAVE done, and when the owner may reasonably expect the remaining documents.  If you decline to produce documents, state why (e.g., privileged, not on the section 5200 list)

Duplicative/Abusive Requests

  • Keep a list (or copies) of documents you have produced to the owner. While everyone loses paperwork once in a while, asking for the same documents three months in a row is probably abusive.  A refusal to re-copy and send documents should probably be written (or reviewed) by counsel.

Directors’ Right of Inspection

  • Corporations Code section 8334 says the director “shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind …” Despite the language, “absolute” may not be so absolute.  Thus, in Chantiles v. Lake Forest II Master Association, the court refused to give a director access to ballots containing information on how other owners had voted.  The court noted that certain public policies, such as an owner’s reasonable expectation of privacy, may outweigh a director’s right to view documents.

PRACTICE TIP: Sometimes directors go rogue, and the rest of the board may worry about access to highly sensitive documents, fearing that the documents may be used against the association.  While it’s tempting to just declare documents “off limit”, this is a sensitive area, and legal counsel should be sought before routinely denying a sitting director access to such documents.  A court order may be advisable, and/or creation of a subcommittee (particularly when the director has sued or threatened to sue the association).

Membership Lists

Both the Corporations Code and the DSCIDA require production of a membership list.  Unlike other documents required to be produced, the requesting owner must state the purpose for which the list is requested, and it must be for a purpose “reasonably related to the [requester’s] interests as an [owner.]”  Things such as recalls and elections are clearly related to the owner’s interests, while commercial purposes are not.  What falls in between are things such as advising fellow owners about an issue outside the association (construction, non-association political campaigns) which is arguably of interest to many if not all associations.  Check your governing documents, and consider adopting a policy to define “reasonably related” purposes.  Further, if the association chooses to deny access, and the requesting owner challenges those reasons, it is up to the association to prove the requesting member would have abused access to the membership list.  Civil Code section 5225.

Even though the Corporations code and the DSCIDA do not require that a membership list contain email addresses, the Worldmark case holds that if a corporation maintains and uses email addresses to communicate with members, those must be included on the membership list.

DSCIDA allows owners to “opt out” of the sharing of address information, BUT the association is still required to communicate in an alternative fashion.  See Civil Code section 5220.

Penalties for Violation

Homeowner

The owner may bring a court action, in small claims court or superior court, to enforce the owner’s inspection/copying rights.  If the owner wins, the court SHALL award the member costs, including “reasonable attorney’s fees” AND a civil penalty of up to $500 ” for the denial of each separate written request…”

Does that mean for each separate line item on a multiple item request?  Possibly, although the decision in Wittenberg v. Beachwalk Homeowners Association (which concerned election violations) suggests that the amounts should be capped for each written request as a whole–another good reason to insist on a form.

Association

In a challenge based on production, the winning association can recover “costs” ONLY if the court finds the owner’s action to be “frivolous, unreasonable or without foundation.”  Civil Code section 5235.  That’s bad enough, but when you consider that the court usually defines “costs” as NOT including attorneys fees, the association may find itself losing even when it wins.