The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 8:46 a.m., on Tuesday, February 23, 1999, in Room 2149 of the Legislative Building, Carson City, Nevada. The meeting was video conferenced to the Grant Sawyer Office Building, Room 4401, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Mark A. James, Chairman

Senator Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Maurice Washington

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

Senator Raymond D. Rawson, Clark County Senatorial District No. 6

Senator Michael A. Schneider, Clark County Senatorial District No. 8

STAFF MEMBERS PRESENT:

Janice McClure, Committee Secretary

OTHERS PRESENT:

OTHERS PRESENT (Cont.):

Michael Trudell, Manager, Caughlin Ranch Homeowners Association

L. Duane McPherson, Lobbyist, President, Spring Creek Association

David T. Pursiano, Attorney, Parsons & Pursiano LLP

Chairman James opened the hearing on Senate Bill (S.B.) 146.

Senator Dina Titus, Clark County Senatorial District No. 7, stated S.B. 146 enhances the penalty for assault or battery of a taxi driver by adding "taxi driver" to an existing list of specially protected individuals. Transit operators were added during the last legislative session to discourage violence against bus drivers and to encourage citizens and tourists to ride the bus in Las Vegas and Reno. Senator Titus said the need for this measure in the case of taxi drivers is even more striking than it was for bus drivers. She illustrated her point with statistics provided by the Taxicab Authority (Exhibit C). Senator Titus furthered the Taxicab Authority for Nevada teaches safety guidelines, but these are often not enough to protect the taxicab drivers. She encouraged the Senate Committee on Judiciary to pass S.B. 146 because it will send a message that Nevada protects its taxi drivers giving a positive impact on Nevada’s image and tourist-safe economy.

Charles L. Horsey III, Administrator, Housing Division, Nevada Department of Business and Industry, stated he was representing the Department of Business and Industry director’s office as well as the Taxicab Authority in support of S.B. 146. He pointed out to the best of his knowledge the statistics presented by Senator Titus were only representative of Clark County. He added the Transportation Services Authority, which is also an agency within the Department of Business and Industry, has the responsibility of supervising taxicabs in northern Nevada and have had taxi drivers killed in the line of duty.

Ben Graham, Lobbyist, Clark County District Attorney, stated when he first started working in the Clark County District Attorney’s Office more than 20 years ago he went through case law in doing research on major death penalty cases. He said you could almost trace a history of violence through reading Nevada Supreme Court cases involving robbed, beaten, killed and burned taxicabs and drivers. Mr. Graham furthered almost every year there is an appeal dealing with a victimized cab driver and frequently a death penalty situation. He indicated his full support of S.B. 146.

Senator Porter suggested posting in the cabs the penalty for assault or battery of taxicab drivers. Mr. Graham stated it should be left up to the taxicab companies. Mr. Graham said he believed as to the image of friendliness, publicity in the community would probably be adequate.

David F. Sarnowski, Chief Deputy Attorney General, Criminal Justice Division, Office of the Attorney General, stated he was appearing in place of the deputy attorney general assigned as counsel to the Taxicab Authority. Mr. Sarnowski echoed the attorney general’s support of S.B. 146. He stated most of what the deputies do in the Criminal Justice Division involves litigation of convictions that district attorneys have obtained. He pointed out his deputies have done a fairly large number of these types of cases to include capital litigation. He furthered the cab driver victims in these cases are chillingly at risk, particularly in the late hours when robberies statistically tend to occur.

Danny L. Thompson, Lobbyist, Nevada State American Federation of Labor-Congress of Industrial Organizations, voiced support for S.B. 146. He said anything the Legislature can do to help the taxicab drivers is in everybody’s best interest, given Nevada lives and operates off a tourism economy.

Gary E. Milliken, Lobbyist, Star Trans, thanked Senator Titus for bringing forth S.B. 146.

Lucille Lusk, Lobbyist, Nevada Concerned Citizens, spoke in opposition to S.B. 146 and all other bills like it, not because her group has any animosity towards taxicab drivers, but because her group’s concern has grown over the years about unequal application of the law. Ms. Lusk said as more and more specially protected classes are created, it results in the de facto creation of unfavored groups against whom the crime appears less egregious where the penalty is less severe. Ms. Lusk stated she understands the argument of vulnerability, but cannot agree. She conveyed instances of violent crimes committed against her own family members in order to stress her belief that everyone needs equal protection of the law, not just certain classes.

Senator Titus pointed out Exhibit C also contains a statement from Robert G. Anselmo, Administrator, Taxicab Authority, fully supporting S.B. 146.

There being no further testimony, Chairman James closed the hearing on S.B. 146 and opened the hearing on S.B. 192.

Senator Raymond D. Rawson, Clark County Senatorial District No. 6, stated S.B. 192 came about as a result of his attending a homeowners association meeting where there were as many proxies as people and the association had presented a new budget which increased the assessment. He said the association’s response was that, according to Nevada Revised Statutes (NRS), if 51 percent of the people did not reject the increased assessment, it became law automatically. Senator Rawson said he was alarmed that basic principles of government were being violated at that meeting. He said he then sketched out a few basic principles which need to be followed in a homeowners association meeting. He stated not everything in S.B. 192 is absolutely the way it has to be, but wanted to get across the basic aspects of what he was trying to accomplish. Senator Rawson furthered all of the abuses seen at any level of government will be seen in the homeowner associations. He said he believed all forms of government should follow basic constitutional values.

Senator Rawson pointed out proxy voting contravenes one of the basic principles of democracy in that on one hand a person can tell a proxy how to place his vote, but on the other hand that person really does not know what conversations have transpired at the meeting. Senator Rawson asked the Senate Committee on Judiciary to keep in mind when going through S.B. 192 and similar bills, it is probably good policy to institute in NRS basic principles to govern the operation of homeowner associations.

Senator Rawson said he did not have an overwhelming feeling about how long an officer of a homeowners association should serve. He said he believed it would be fundamentally wrong if a small group of people at a homeowners association meeting usurped control of an association through proxy voting, but if an association by a majority vote wants to return an officer time and time again he has no concern with that. Senator Rawson stated although he knows it is a major departure to talk about not allowing proxies, he set the quorum requirements low in S.B. 192. He furthered if fees are going to be raised there ought to be a super-majority vote, because these fees are a form of taxation. Senator Rawson referred to his suggested amendments (Exhibit D), indicating changes on page 7 regarding majority votes. With regard to class action lawsuits, Senator Rawson suggested allowing individual homeowners to opt out of that suit if they want. This would maintain some rights for the property owner.

Senator Care stated with regard to proxies it could be impractical of an absentee homeowner to fly to the homeowners association meeting for a simple vote and also, in the case of senior homeowners, it is not always that easy for them to get from home to the clubhouse.

Senator Rawson agreed with Senator Care’s point on the proxy issue. Senator Rawson stated he was concerned specifically with people who reside full time in the housing development but are too lazy to go to a meeting, or maybe a development corporation that may inappropriately use proxies to control a situation. He said he believed if the proxies were well-defined, the absentee homeowner still would have all of his constitutional interest in that property and should be able to be represented.

Chairman James questioned the elimination of proxy voting. He stated public companies recognized long ago that proxies are needed in certain instances. It was recognized in the securities laws that the critical issue was the kind of disclosure that goes along with the solicitation of a proxy. Therefore, proxies cannot be solicited for a vote without full disclosure being given of the nature of the business of the meeting, scope of the proxy, and ability to revoke a proxy vote anytime before it is exercised. Chairman James furthered he had recently represented a client who he believed was the victim of abuse by a homeowners association, wherein the homeowners association solicited proxies without telling the homeowners the nature of the meeting.

Senator Michael A. Schneider, Clark County Senatorial District No. 8, stated he applauds Senator Rawson’s effort on S.B. 192 and furthered he has a homeowner bill coming out shortly addressing everything that was done last session on this issue and the proxy issue as well. Senator Schneider indicated he wants to work with Senator Rawson and Chairman James on this bill.

Chairman James stated there are some good homeowners associations that are complying with laws, but unfortunately there are a few that abuse the power. He asked Senator Schneider if his bill is under chapter 116 of NRS. Senator Schneider replied yes.

Senator Rawson pointed out section 3 of S.B. 192 requires the homeowners associations to follow Roberts Rules of Order. He suggested it may be sufficient simply to state the homeowners associations need to conduct business according to parliamentary rules.

Chairman James said the prior provisions stated the association by-laws would govern procedures at a meeting, but that is a very loose requirement.

Senator Wiener added a concern that if pursuing proxies to a greater extent, there be some time considerations included.

Senator Titus stated she also has a bill related to this topic that will come to the Senate Committee on Judiciary. She suggested grouping that bill with Senator Schneider’s bill and S.B. 192, and work the three bills together in a subcommittee on which she would be glad to serve.

Diane Weissman, Board Member, Canyon Gate Masters Association, stated she was testifying from Las Vegas as a homeowner. She said while most homeowner associations are corporations, a debate rages as to what they truly are. She asked if they are mini governments in disguise, corporations, or something in between. Ms. Weissman furthered by any definition it is questioned why homeowners associations are treated to less stringent corporate law than regular corporations. Because homeowners associations have the power and authority to fine, tax or lien one’s personal residence, Ms. Weissman stated a homeowners association should be held to a much higher corporate standard.

Ms. Weissman said she is in agreement with most provisions contained in S.B. 192, but would like to see it go further in reference to elections without proxies. She said she would also like to see the issue of mandatory arbitration addressed in empowering the ombudsman office. She furthered she feels association homeowners would best be served by using a secret written ballot with a double envelope system, counted by a disinterested neutral third party, for any election submitted to the entire membership for a vote. This would include, but not be limited to, votes for capital improvements, budget ratification, lawsuits, assessments, dues increases above a certain percentage, and especially for election of directors. Ms. Weissman stated this could be done entirely by mail allowing elections to be held in a timely manner with no proxies allowed. She said the proxy system is ripe for abuses due to its tamper-friendly nature. She stated there are penalties in place against the homeowner for breaking the rules, yet there are no penalties in place against the association for breaking the rules or abusing its authority.

Ms. Weissman stated additional powers need to be granted to the ombudsman. These powers should include the right and obligation to notify the attorney general of evidence of noncompliance with state law by association boards, and the rights and obligation to recommend license revocation to the real estate commission of property managers who do not comply with state law. She stated arbitration and mediation should be optional, not mandatory as is now required. Ms. Weissman continued arbitration and mediation should be made cheaper, faster and easier than court action and all arbitration should be binding with right of appeal, giving association homeowners and boards options, not restrictions as is currently the case.

Michael Trudell, Manager, Caughlin Ranch Homeowners Association, stated he agrees wholeheartedly with the preamble superseding S.B. 192. He said he does not believe anyone would disagree with a democratic form of government. However, he does not believe homeowners associations are units of government, but are corporations.

Chairman James interjected the legal distinction being made by Mr. Trudell between a governmental entity and a corporation may be true, but the homeowners associations do exercise dominion over people’s lives and over what happens in their communities, much as a government does. He averred the Nevada Supreme Court saw fit to give homeowners associations the power of eminent domain until this Legislature overruled that decision and took that power away last session. Chairman James opined in every respect a homeowners association acts and affects people’s lives like a government.

Mr. Trudell stated Caughlin Ranch Homeowners Association would like to work with the various entities drafting the bill. Chairman James asked Mr. Trudell if he was employed by the homeowners association. Mr. Trudell replied he is an employee of the board of directors.

Chairman James asked if the developer of Caughlin Ranch is still the controller of the homeowners association. Mr. Trudell replied yes, through the declaration the developer has the power to elect a board of directors. Caughlin Ranch has business people and attorneys who serve on the board of directors and has a fiduciary responsibility to represent the interest of the homeowners association, not the interest of the developer.

Chairman James stated the board is elected and controlled by the developer. Once a certain percentage of the subdivision is sold out, the developer is required under the declaration to relinquish control. Chairman James asked Mr. Trudell, in his experience working in this industry, if it is common for homeowners associations, where the developer has withdrawn and the homeowners association is controlled solely by the homeowners, to employ someone like Mr. Trudell with his background and training to function in his position.

Mr. Trudell replied in a lot of instances people within the homeowners associations serve voluntarily on committees in an attempt to keep their dues at a minimum. To some extent, some associations hire professional managers through a management company so that person is not an employee of the homeowners association but provides certain administrative services. Mr. Trudell stated he believes most of the homeowners associations are moving towards hiring professionals through professional management companies and having the administrative burdens of the homeowners association handled through professional managers.

Mr. Trudell pointed out that Caughlin Ranch has 1,780 members in its homeowners association. With such a large number of members the homeowners association really needs to have someone who is collecting and watching over the funds in an extremely responsible manner. He furthered Caughlin Ranch has privately owned parks used by the general public through the homeowners association’s approval. Therefore, the Caughlin Ranch Homeowners Association has tremendous responsibilities similar to a special assessment district for recreational purposes; that is a burden to its homeowners. Mr. Trudell stated Caughlin Ranch is not willing to increase that burden on its homeowners by having to comply with all the requirements put on a condominium homeowners association to get the accountability for how the reserve funds are being collected, used and properly disbursed.

Mr. Trudell stated Caughlin Ranch is exempt from chapter 116 of NRS through its provision for planned unit developments in existence prior to 1992. He said Caughlin Ranch is also exempt from S.B. 314 of the Sixty-Ninth Session because each member does not pay the $500-per-year fee initially established as a threshold to distinguish between the condominium homeowners associations, where there is a high level of reserve accounts, and the homeowners associations, whose primary function is to maintain the common areas. He added 75 percent of Caughlin Ranch Homeowners Association’s revenue goes towards the maintenance of its common areas.

Mr. Trudell, in addressing what is being proposed with S.B. 192, stated there should not be limitations on terms because some of the board members have expertise that make them a real asset to the association.

Chairman James asked Mr. Trudell if he was suggesting there not be any term limits, or just that a 2-year term is too short. Mr. Trudell replied the more legislation that is adopted, the less qualified people will want to be involved in an association because of potential liability for which they could be held accountable.

Mr. Trudell continued he did not agree the open meeting law applied to the homeowners associations because the revenues collected by the homeowners association are not taxes. He asked if those revenues are considered to be a tax, then would the homeowners association have to have their budgets approved by Nevada’s taxation committee.

Chairman James pointed out the legislative taxation budget committee does not, for example, approve Clark County’s budget, but Clark County government does. He further pointed out the revenues collected by the homeowners associations are assessments and assessments are taxes.

Mr. Trudell stated if the revenues collected by the homeowners association are defined as a tax he sees a whole new series of burdens being created for the homeowners associations.

Chairman James stressed that within the homeowners association a person has to pay assessments and the association uses this revenue much like a tax to pay for the common good of the community. But the issue here is whether the homeowners association meetings should be held in accordance with the open meeting law, which just means people have to be noticed of when the meetings are to be held and what issues will be discussed.

Mr. Trudell said the problem for the homeowners association is NRS chapter 241 requires them to send out a notice either by hand or by mail to every individual in the community within a certain time frame. He further said Caughlin Ranch Homeowners Association is not sending out notices prior to the meetings, but after the meetings the association sends out a summary of the board of directors’ minutes. If homeowners are concerned they can address these issues directly to the board of directors.

Mr. Trudell said most of Caughlin Ranch Homeowners Association’s decisions are business decisions that affect the homeowners association. He added that planned community developments have a different agenda than the kinds of issues that are dealt with regarding condominiums.

Mr. Trudell brought up another concern with limitations on boards of directors in making assessment for common expenses. He stated the board of directors’ fiduciary responsibility is to look ahead at what the responsibilities of a homeowners association will be in the coming year and establish the annual assessments for the upcoming year. He said that he feels to not allow the board of directors to do this eliminates their fiduciary responsibility. He insisted the language requiring a ratification of a budget by a quorum of the members works in a 200- to 300-unit condominium, but does not work in a 1,700- or 2,000-member planned community development where 90 percent of the homeowners are happy with what the association is doing and thus do not show up at the meetings.

Chairman James informed Mr. Trudell that the language does not say two-thirds of the association’s members are needed for a quorum. The language says two-thirds of all persons present entitled to vote is a quorum.

Senator Washington indicated, if this legislation goes to subcommittee, he would like to sit on the panel, as he lives in a planned community with a homeowners association and has seen some of the same problems being discussed.

Senator Care stated he would reserve his questions because much of this discussion has gone beyond Senator Rawson’s bill, but he would like to serve on the possible subcommittee as well, and that is where he will voice his concerns.

In closing, Mr. Trudell said he believed the proxy power is essential for any form of government. He pointed out Caughlin Ranch Homeowners Association operates as a business and makes business decisions affecting people and their investments in the community. He reiterated the laws that apply to a condominium association do not necessarily apply to a planned community development the size of Caughlin Ranch.

Chairman James stated it should be kept in mind that there are two levels of homeowner association purposes. The developer has the purpose of controlling the homeowners association and having the rules in place to keep the community in a condition that is going to help the developer sell out the rest of the homes. Once the homes are sold out, the homeowner association’s purpose is to keep the community in a desirable condition in which to live.

Mr. Trudell stated Caughlin Ranch Homeowners Association has the multi-level process now of which Chairman James is referring.

L. Duane McPherson, Lobbyist, President, Spring Creek Association, in Elko, handed out an information package on Spring Creek Association. (Exhibit E. Original is on file at the Research Library.) He stated about 41 percent of Spring Creek homeowners live outside Elko County. He said Spring Creek Association is exempt from NRS chapter 116 because the entity was created prior to 1992 and its assessments are currently $300 per year. Mr. McPherson stated with regard to the term limits, Spring Creek Association’s officers are hired, paid, staff employees; however, the association has set out 4-year terms. Mr. McPherson said 4 years gives a board member time to understand what is happening with the association. He remarked it then takes a year or so until the officers are up to speed, understanding large budgets and the procedures and rules they have to follow. He continued the 4-year terms have been effective in the Spring Creek Association. Mr. McPherson urged the Senate Committee on Judiciary not to set a 2-year limit for the board members.

With regard to the quorum requirement, Mr. McPherson stated each of Spring Creek’s 5,420 lots has a vote in the association. He pointed out Spring Creek is completely developed and the developer is gone. He stressed the quorum requirement set forth in Spring Creek Association’s by-laws (Exhibit E) is 10 percent, allowing for 542 votes at any meeting. He said the 10 percent was set because Spring Creek Association has had elections fail because of lack of response due to the absentee homeowners.

With regard to the proxy vote requirement, Mr. McPherson stated that several elections ago Spring Creek Association instituted the ability for absentee homeowners to utilize a write-in ballot if they wished, or proxies, and this has increased the absentee homeowner participation by about 20 percent. Mr. McPherson explained Spring Creek Association realizes it is a form of local government, it recognizes the assessments it collects are taxes, and it notices everything possible to members of the association. He expressed his desire to participate in the subcommittee process once the other bills are referred to the Senate Committee on Judiciary.

David T. Pursiano, Attorney, Parsons & Pursiano LLP, stated the bulk of his practice is devoted to representing homeowners and homeowners associations. He said in view of the fact this matter may go to subcommittee, he would not make a lengthy presentation and offered his assistance in formulating legislation. Mr. Pursiano added Senator Rawson’s comments on S.B. 192 addressed the concerns he also has with the bill.

Senator Care asked Mr. Pursiano if he ever had a case in which a homeowners association had to seek injunctive relief, where getting a majority of the members’ approval to file a complaint was just not practical.

Mr. Pursiano replied yes, it recently happened where a couple of the developers still owned a couple of the condominiums and the homeowners association had instituted litigation for construction defects. He continued the developers who owned a couple of the units moved for an injunction prohibiting the construction-defect case from going forward. The district judge recommended that the association and developers poll the membership and the membership voted overwhelmingly to continue the litigation.

Chairman James disclosed his recently expanded law firm has two partners who represent homeowners association boards. He stated the only involvement he has ever had in homeowners association cases is when he represented three homeowners who were victimized by a board and that lawsuit was successfully concluded. Chairman James intends to fully participate and vote on this legislation.

Gary E. Milliken, Lobbyist, Community Associations Institute, offered his assistance to work with the committee or possible subcommittee, especially on the 2-year term limit and proxy issues. Mr. Milliken stated he has a problem with the 2-year term limit and it needs to be defined as to when proxies can be used and under what circumstances.

Pamela Scott, Senior Property Manager, Summerlin, Howard Hughes Corporation, testifying from Las Vegas, explained Summerlin is a master planned community. She has worked onsite for boards of directors, has owned management companies and managed multiple associations at one time, and at the present time she works for a declarant. She submitted a document (Exhibit F) addressing her concerns regarding S.B. 192 and the effect the bill would have on an association’s ability to function. Ms. Scott said she understood NRS chapter 116 was originally adopted as a uniform law and as a consumer protection law to make sure builders and declarants were providing the proper information and disclosures to homeowners when purchasing a home. She said she believed NRS chapter 116 adequately addresses most of the concerns raised by Senator Rawson. She agreed the homeowners associations are a form of government and the assessments could be considered taxation, but without a proxy vote Ms. Scott said she believed the assessments collected would be taxation without representation. She expressed she has no problem with a 2-year term limit and no problem with a limitation on raising assessments each year.

Chairman James disclosed his law firm also represents the Howard Hughes Corporation on certain matters, but nothing having to do with real estate or homeowners associations of which he is aware.

Shari O’Donnell, Community Relations Director, Signature Homes, testifying from Las Vegas, stated she serves on Signature Homes Homeowners Association board. Ms. O’Donnell stressed not only was NRS chapter 116 created by those involved in associations, but also the lending community, the governing agencies and the insurers. These groups all scrutinized that original common interest act as well, to make sure their interests and consumer protection were included. She said she believed if S.B. 192 was to be passed as it stands, there is a good chance the lenders, governing agencies and insurers would refuse to grant loans against homes built within homeowners associations in Nevada. She said she would like to see the meeting notice requirements made a little more flexible, allowing the notices to be posted in common areas of a community or put in a newsletter. She agreed with Chairman James if proxies are going to be used, there is a need to know what is going to be addressed at the meeting. Ms. O’Donnell said she is glad Senator Rawson is rethinking the issue of term limits. She stated it takes at least 3 years for someone to become very conversant with NRS chapter 116 and in tune with the needs of the community. With regard to quorums, Ms. O’Donnell said the board has to be empowered to meet its fiduciary responsibilities without getting a super-majority approval of the membership. She also offered her assistance in working with the potential subcommittee on this bill.

Senator Titus observed there were no homeowners present to testify on S.B. 192, leading her to believe maybe the developers were wanting to protect their right of control over homeowners associations and not protecting rights of the homeowners.

Jean Georges, Member, Community Associations Institute, testifying from Las Vegas, stated she has seen all sorts of issues arise in homeowners associations. She thanked Senator Rawson for suggesting there can be some amendments to his proposed legislation. She concurred with those in Las Vegas who testified on this bill. She also offered her assistance in working with the committee on these issues.

There being no further business, Chairman James closed the meeting at 10:15 am.

RESPECTFULLY SUBMITTED:

Janice McClure,

Committee Secretary

APPROVED BY:

Senator Mark A. James, Chairman

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