HOA Boards: Mediation vs. Arbitration?

Mediation Bytes by Karin Hobbs

You find yourself on a community association board. Homeowners are complaining about leaking roofs, damaged walls and soggy carpet. The board’s attorney has filed a lawsuit against the roofer. The roofer sued the general contractor and the developer who both blame the architect. Over a year later, with sufficient information about the case, the lawyer suggests the board mediate the dispute. What does that mean? How should you vote? Alternately, the other parties are requesting arbitration. What is the difference?

Mediation and arbitration are two methods of resolving disputes without going to court. Arbitration is similar to court in that an arbitrator (rather than a judge) listens to evidence and makes a decision. Unlike court, the parties (rather than the state) select and pay the arbitrator. However, if you are unhappy with the arbitrator’s decision, you have little recourse. Generally, you cannot appeal am arbiter’s award except under limited circumstances. Over the past few years, arbitration has become somewhat disfavored in some areas of law because many believe it does not save time or money, and arbitrators are reputed to “split the baby” rather than strictly apply the law.

In contrast, in mediation the parties hire a mediator to help the parties reach a mutually acceptable solution. The mediator does not make a decision. The mediator helps the parties find a solution both can agree upon. After the case is settled, the parties enter into and sign an agreement, and neither side can or needs to appeal because they have agreed. Mediation is favored in most lawsuits, but community association cases are particularly good cases to mediate because often fostering good relations or expediting settlement is more important than winning in court.

How does this play out? For the community association with significant leaks in the roof, the parties will likely agree to mediate. As a Board member you should have been informed that a multi-party construction defect lawsuit is expected to last 2 to 3 years – and is estimated to cost at least $250,000 in attorneys fees, depending on your jurisdiction. Let’s say the repair will cost $2 million. There is no guarantee the association will win the lawsuit, receive a $2 million award and be able to collect it. The roofer and the general contractor may be bankrupt and unable to pay the amount awarded by a court. Insurance may or may not cover it or be in effect. In many instances, the insurance companies will seek to shift the responsibility. Your lawyer may advise you there may not be coverage, even if you win. Faced with all of this, attorneys often suggest hiring a mediator to assist in resolving the dispute and getting a settlement rather than taking these risks. In mediation, the roofer, the developer, the architect, and the general contractor will likely agree to pitch in to fund some of the cost of the repairs. You will likely compromise for a smaller amount, but the lawsuit is over. More importantly, your board has incurred much less in attorney’s fees, and the amount available to fund the damage is no longer uncertain. Possibly most importantly, the board can begin to hire contractors to fix the damage before the weather hits.

                       

Karin S. Hobbs

A Fellow and Board member of the International Academy of Mediators, Karin has enjoyed a distinguished career as a mediator, an attorney and a trainer.  She established the Appellate Mediation Office at the Utah Court of Appeals in 1997, served as Chief Appellate Mediator, was Bar Counsel for the Utah… MORE >